Dow futures fall 200 points after Hamas attack against Israel

All sectors ended Monday in the green, led by gains in energy and industrials, which closed higher by 3.5%, and 1.6%, respectively. Oil and natural-gas prices jumped during the day, driven by Hamas’ attack on Israel and Israel’s ensuing battle against the Hamas militants, leading to concerns about the region’s oil supply.

Halliburton was the biggest energy winner, with the stock popping 6.8%, followed by Marathon Oil Corp and ConocoPhillips.

Along with oil and gas giants, major defense companies also jumped amid the Middle East conflict. Defense tech and aerospace giants Northrop Grumman Corp and L3Harris Technologies led industrials higher, adding 11.4% and 9.9%, respectively. Lockheed Martin also climbed 9.9%.

The real estate sector gained 1.3%, while utilities added 1%.

— Pia Singh

U.S. stocks ended Monday’s trading session in the green as investors appeared to shrug off pressures driven by the deadly Israel-Hamas war.

• The Dow Jones Industrial Average rose 197.07 points, or 0.59%, to close at 33,604.65.
• The S&P 500 gained 0.63% at 4,335.66.
• The Nasdaq Composite was higher by 0.39% at 13,484.24.

— Pia Singh

Oppenheimer’s head of technical analysis, Ari Wald, listed three specific stocks he’s bullish on in this specific market: Coterra Energy, CME Group, and Zscaler.

Within the energy sector, Wald currently prefers cyclical value stocks such as Coterra over defensive value names. The company’s chart shows a “resumption of strength,” he said on CNBC’s “Power Lunch” on Monday afternoon.

CME Group is another name that has recently indicated relative strength, which Wald said is promising. “I think that longer term turnaround continues for CME Group,” he said.

Finally, the analyst listed Zscaler as a good name to capitalize on the breakout in cybersecurity stocks. “This is what we’re recommending on this pullback — high beta, long duration, high momentum technology stocks,” Wald said.

— Lisa Kailai Han

The threat posed by effective weight loss drugs toward ResMed’s sleep apnea franchise is “overdone,” according to JPMorgan.

Analyst David Low upgraded shares of the medical equipment provider to overweight in a Monday note. While obesity drugs certainly pose a risk in shifting obese patients away from CPAP devices towards weight loss drugs, Low believes that the near-term impacts on ResMed are likely to be “modest.”

“After the sharp price correction, we now see value and upgrade our rating to Overweight,” Low wrote. “We also do not expect a rapid transition to the obesity drugs, given the current supply constraints and high cost.”

— Lisa Kailai Han, Michael Bloom

RBC Capital Markets head of U.S. strategy Lori Calvasina advised that U.S. stocks can “weather the current surge in interest rates.” Last week, the benchmark 10-year Treasury yield reached levels not seen in 16 years, sending stocks for a wild ride.

To be sure, Calvasina warned that the move higher in rates “does need to come to an end soon.”

“The S&P 500 tends to keep rising when the move in 10-year yields has been limited to less than 275 basis points. When the surges in yields are more than that, the stock market tends to decline (though long-term investors will take comfort in the fact that the 12-month forward gains in the S&P 500 that follow tend to be well above trend),” she said. “If we use early April 2023 as the starting point for the current yield surge, we are still in the category of milder moves. Of course, it is debatable what the starting point for the current surge in yields should be.”

The U.S. bond market was closed Monday for Columbus Day.

— Fred Imbert, Michael Bloom

Energy, industrials and real estate are outperforming the rest of the stock market on Monday, but for the month of October so far, it’s been this year’s usual suspects: Megacap technology companies.

It’s only been six trading days but as a group, month-to-date, the communications services and tech sectors are higher by 4.3% and 3.5% respectively, fueled by gains in Instagram parent Meta Platforms (6.5%), Google’s Alphabet Inc. (6.1%), AI colossus Nvidia (4.6%), Apple (4.5%), Microsoft (4.5%) and Tesla (4.2%).

Meta vs the S&P 500 in October.

By contrast, the Nasdaq Composite is higher by 2.1% and the S&P 500 just 1.2% in October.

— Scott Schnipper

The odds of another rate hike from the Federal Reserve in November is falling, according to the CME FedWatch Tool.

Markets are pricing in an 86% likelihood on Monday that the Federal Reserve will hold rates steady at next month’s policy meeting. That’s up sharply from a 72.9% chance on Friday.

— Sarah Min

Barclays says cloud security provider Zscaler can meaningfully grow from an emerging form of cybersecurity.

The firm upgraded Zscaler stock to overweight in a Monday note. The stock jumped 4.4% on the new rating.

“We believe ZS will continue to gain share in SASE given its first-mover advantage (particularly in secure web gateway and zero trust network access), expansive data center footprint, and established presence with large enterprise customers,” analyst Saket Kalia said.

CNBC Pro subscribers can read the full story here.

— Brian Evans

There is still too much unknown about the conflict between Israel and Hamas to confidently raise projections for oil prices, RBC Capital Markets strategist Helima Croft said on “Squawk on the Street.” She pointed to the potential involvement of Iran as one variable in the oil market.

“We simply do not know. We’ve always highlighted from the start of the year the risk of a confrontation in the Middle East. Once Bibi Netanyahu returned to the stage in Israel, he was very clear that he was deeply worried about the Iranian nuclear program. In the wake of this attack, there’s going to be hard questions asked about what type of support Iran provided to Hamas,” Croft said.

Oil futures were up about 4% in mid-morning trading.

— Jesse Pound

The ongoing conflict in the Middle East “is not the typical Hamas-Israel scuffle, but potentially something larger,” according to Bank of America. The risk of a potentially longer conflict may lead the U.S. government to increase defense investments to build munitions and weapon systems at faster rates and in higher volumes, said analyst Ronald Epstein.

“Ultimately, the US will be supplying munitions, missiles, and anti-missile systems to two allies (Ukraine and Israel) on top of supplying its own needs. As in any resource-constrained environment, difficult choices may have to be made as to who gets what from Pentagon inventories,” Epstein said in a Monday note.

The analyst provided a handful of stocks that have exposure in this event.

“The more immediate focus of investors due to this potential increase in defense spending are General Dynamics, Northrop Grumman, Lockheed Martin, Raytheon Technologies, and L3 Harris through their exposure to missiles, missile propulsion systems, land systems (wheeled and tracked armored vehicles), and munitions,” said Epstein.

— Hakyung Kim

Shares of small, U.S.-focused companies were higher on Monday, boosting investors’ confidence about the broader economy amid the intensifying Israel-Hamas war.

The Russell 2000 index of small-cap companies added 0.8%, while the S&P Small Cap 600 index climbed 1.1%. The broader S&P 500 gained 0.7%, meanwhile.

“In the midst of all the red this morning, to see the Russell suddenly show signs of signs of green and life was an indication that the broader market was preparing to turn,” said Quincy Krosby, chief global strategist at LPL Financial, noting that the Russell is a “risky” index that has an abundance of small bank stocks and industrial names. “Many of these companies have debt…perhaps it’s suggesting that the Russell investors see the yields coming down a bit.”

Small caps can often react more quickly to economic changes, including a threats of a recession.

— Pia Singh

Redburn Atlantic says Spotify could stoke a response from Amazon with its latest bundle of audiobooks and music streaming.

The firm downgraded Spotify stock to neutral in a Monday note. Shares declined by 2% during the day’s trading session.

“We estimate immediate audiobook royalty costs to reach c€80 million for the launch in the UK and Australia, with an additional €180m in costs for the US,” analyst Agnieszka Pustul. “In total this could erase 200bp of gross margin. Furthermore, we estimate that new subscribers that immediately take up audiobooks would generate negative gross margins.”

CNBC Pro subscribers can read the full story here.

— Brian Evans

A peak in bond yields is tough to call but would give a sizable lift to equities, according to Fundstrat Global Advisors co-founder Tom Lee.

“It’s gonna be quite substantial,” Lee told CNBC’s “Squawk on the Street” on Monday. The investor expects a hit to consumer confidence from the Israeli-Hamas conflict, and greater macroeconomic pressure, could mean the Federal Reserve is more likely to pause.

“I think that that takes away a downside case for equities,” Lee said. “And it also makes it harder for interest rates to keep pushing higher, which of course is something that could break the economy.”

The bond market was closed Monday for Columbus Day. However, the iShares 20+ Year Treasury Bond ETF was higher by 1.3%, pointing to lower yields. Yields and prices have an inverted relationship.

— Sarah Min

September’s bearish flow in futures market has slowed in early October, according to Citi.

Despite the bearish momentum dissipating, “it is unclear whether the fading momentum could mark the bottom of the sell-off, but so far no new bullish trend is evident,” strategist Chris Montagu said in a Monday note.

For futures positioning in the S&P and Nasdaq, investors are nearly one-sided short, Montagu added, with average profits in the S&P and Nasdaq of 2.6% and 1.3%, respectively.

— Hakyung Kim

The bond market is closed on Monday, but bond ETFs suggest that yields will fall once fixed income trading resumes on Tuesday.

The iShares 20+ Year Treasury Bond ETF (TLT) was up 1.4% in midday trading, and the iShares Core U.S. Aggregate Bond ETF (AGG) added 0.8%. The price of bonds and long bond funds move opposite of yields.

The moves could be due to a flight to safety as investors look to get defensive given the conflict in the Middle East.

— Jesse Pound

A full-blown war between Israel and Hamas has further stoked volatility in global markets, and one Wall Street firm said it could drive investors away from risk assets, mimicking the climate surrounding the Russia invasion of Ukraine in February, 2022.

“The conflict’s course is uncertain, but will very likely escalate, possibly contributing to a significantly risk-off global environment over the next 1-3 months,” Dan Alamariu, chief geopolitical strategist at Alpine Macro, said in a note. “Think of Russia’s invasion of Ukraine in 2022.”

— Yun Li

Gold futures, the U.S. dollar and U.S. Treasuries all rose in early trading Monday as investors sought what are perceived to be safe ports in a world of increased violence, expanding defense budgets and uncertain inflation.

Gold rallied about $28 the ounce to $1859.80, up 1.53%, according to FactSet.

The DXY Index that measures the value of a dollar against six global currencies, but mostly the euro and the yen, rose as high as 0.4712% Monday, to 106.60.

Although the bond market is closed for Columbus Day, 10-year Treasury futures added about 0.67%, the five-year gained 0.50% and the two-year by 0.20%.

— Scott Schnipper

The oil market is taking a pause to assess the situation with the Israel-Hamas conflict right now, according to John Kilduff, Again Capital founding partner.

“It’s a moment of pause,” he said on CNBC’s “Squawk Box.” “It’s a matter of what shoe drops next … This thing could escalate, and that’s what the oil market is holding its breath for right now, while being reasonable about the price reaction at the same time in my view.”

The energy trader said it’s wise to anticipate more gains in oil prices in the short run. The U.S. West Texas Intermediate futures last traded 3.7% higher to $85.85 per barrel.

“I think you have to position yourself for some more potential upside here in the short term,” Kilduff said. “Some more upside from here because economic concerns take a backseat to this geopolitical risk that is staring us right in the face.”

— Yun Li

The uncertainty in Israel could put pressure on cybersecurity stocks, but many of the companies should be mostly unaffected despite the outsized impact of Israel in the industry, JPMorgan analyst Brian Essex said in a note to clients.

“Israel has been the source of a substantial amount of talent, development, and innovation over the years and, as a result, several companies within our coverage universe maintain a meaningful presence in the country. As events continue to evolve, we believe companies with operations in Israel are well prepared to manage geopolitical disruption in the region, but we would not be surprised to see headlines pressure more exposed stocks within our coverage universe,” the note said.

Essex pointed out that Check Point Software and CyberArk are headquartered in Israel, while SentinelOne has significant assets in the country. All three stocks were lower in early trading on Monday.

— Jesse Pound

The iShares U.S. Aerospace & Defense ETF is up 2.7% Monday, on pace for its best day back to Oct. 18, 2022 when it rose 4%.

Monday’s gains are led by Northrop Grumman, up 8.9%, followed by Lockheed Martin up 5.8% and L3Harris higher by 6.8%.

Northrop Grumman is on pace for its greatest daily wins since Mar. 26, 2020, when it rallied 11.39%. Lockheed Martin is also on track for its best day since it jumped 8.69% on Oct. 18, 2022.

— Hakyung Kim, Gina Francolla

OIH jumps

Dallas Federal Reserve President Lorie Logan said Monday she expects a continued need for higher rates, though she did not call for additional hikes as she has in the past.

In prepared remarks for a speech, Logan noted progress made against inflation and said the Fed will need to weigh the impact and the reasons for the recent run-up in Treasury yields, particularly at the long end of the curve. If yields have risen because of anticipation in higher policy rates, that might negate the need for the Fed to do more, she said.

“I expect that continued restrictive financial conditions will be necessary to restore price stability in a sustainable and timely way,” she said. “In my view, high inflation remains the most important risk. We cannot allow it to become entrenched or reignite.”

A voter this year on the rate-setting Federal Open Market Committee, Logan added that it’s “far too soon to think about rate cuts.”

—Jeff Cox

VIX

Stocks opened lower on Monday.

• The S&P 500 was down 0.4%, or 15 points.
• The Dow Jones Industrial Complex was hovering just under flat, down 6 points.
• The tech-heavy Nasdaq inched lower by 1%, or 124 points.

— Pia Singh

Major U.S. airlines canceled dozens of flights to Israel’s Tel Aviv airport on Monday as fighting between Israel and Palestinian militants escalated amid the conflict. Israel bombarded the Gaza Strip with airstrikes on Monday in yet another retaliatory response to Hamas’ surprise offensive attack.

Shares of American Airlines lost nearly 3%, while United Airlines shed 2.7%. Delta Air Lines tumbled 3%.

The Federal Aviation Administration urged U.S. airlines and pilots to use “extreme caution” in Israeli airspace. Allied Pilots Association, the pilots’ union for American Airlines, issued a Do Not Fly directive on Sunday to its members for Israel.

— Pia Singh

JPMorgan says Arm Holdings will capitalize on its position as a leader in providing chips for computing architectures.

The firm initiated coverage of the chip stock with an overweight rating on Monday. Other firms, including Deutsche Bank and Goldman Sachs, also initiated coverage of Arm Holdings, both with buy ratings.

Shares of Arm are down 0.2% during premarket trading. CNBC Pro subscribers can read the full story here.

— Brian Evans

Check out the companies making headlines before the bell:

• Walt Disney — Shares of the media giant rose more than 1% after The Wall Street Journal reported that activist investor Nelson Peltz’s Trian Fund Management has hiked its stake and could seek multiple board seats, including for himself. Trian’s stake is now worth north of $2.5 billion after adding over 30 million shares from just 6.4 million at the end of June, the Journal reported. Trian declined to comment.
• Exxon Mobil, Chevron, Occidental Petroleum — Energy stocks popped as oil prices rallied following the Hamas attack on Israel over the weekend. Exxon and Chevron were up more than 2%, and Occidental gained more than 3%.
• Lockheed Martin — The aerospace and defense company saw shares rise about 4.5% in premarket trading following the surprise attack on Israel by Palestinian militant group Hamas over the weekend.

Read the full list here.

— Sarah Min

The Wall Street Journal reported Sunday night that activist investor Nelson Peltz plans on pushing for board seats at Disney. His firm, Trian Fund Management, owns a stake worth more than $2.5 billion in Disney, the report said, citing people familiar with the matter.

Disney shares ticked 0.5% higher in the premarket.

The report comes at a time when Disney’s stock is struggling. Over the past six months, it’s down 17%. It has also fallen 4.5% year to date.

Disney nor Trian could immediately be reached for comment.

— Fred Imbert

European stocks were lower early Monday, with the benchmark Stoxx 600 index falling 0.4%.

Most sectors traded lower except oil and gas, keeping the U.K.’s energy-heavy FTSE 100 at a 0.3% loss as Germany’s DAX and France’s CAC 40 shed 1% and 1.1%, respectively.

Stoxx 600 index.

Sun, Oct 8 20236:56 PM EDT

Brent crude oil.

Global benchmark Brent crude climbed nearly 4% to $87.49, while U.S. West Texas Intermediate added 4% to $86.20.

— Brian Evans

Sun, Oct 8 20236:44 PM EDT

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