Stock Market Braced for Escalating Middle East Tensions

Due to a family loss, we are postponing our Quarterly Members Only Call until Wednesday, October 9. Office Hours for the week are canceled and will resume on Tuesday, October 8, from 4 p.m. to 5 p.m. ET in the Forum.

Stocks are under pressure this morning following the confluence of events that we highlighted in our opening comments: reports that an attack on Israel by Iran is “imminent” and remarks from the White House that any direct attack on Israel by Iran “will carry severe consequences for Iran.”

This spike in Middle East tensions has injected uncertainty into the market even as it is driving our shares of Lockheed Martin LMT and oil prices higher.

In times like these, folks tend to react emotionally in the moment and that can result in knee-jerk and often poor decision making in the short term. Recognizing that tensions are running very high, in our experience, keeping a calm head tends to prevail over the medium- to longer term. The key will be whether an attack by Iran occurs and what the ensuing response may be. As that unfolds, we’ll act accordingly.

Jobs Data Brings Mixed Picture

In terms of Tuesday's job market signals, there is a mixed picture when comparing the August JOLTs report and the September PMI data from ISM. While the August JOLTs report showed the number of quits fell to the lowest level since August 2020, job openings rose by 329,000 to 8.040 million in August from an upwardly-revised 7.711 million in July, surpassing the market forecast of 7.655 million. That level of job openings suggests the job market is stronger than previously expected.

Because the ISM September Manufacturing PMI’s employment component fell to 43.9 from 46.0, continuing a string of weak monthly Manufacturing PMI figures, comparing it against the August Jolts data gives us an incomplete picture. Wednesday's September ADP Employment Change report and Thursday’s September Services PMI insights for job creation will round out that picture ahead of Friday’s Employment Report.

ISM’s September Manufacturing PMI Remains in Contraction Territory

Stepping back, the overall September Manufacturing PMI reading of 47.2 was better than expected and matched the August figure, but it was still below the expansion-contraction level of 50 for the sixth-consecutive month. Tuesday's data will lead to downward revisions in the Atlanta Fed’s GDPNow model, but as we’ve seen in the last few months, we will want to see the September Services PMI data before jumping to any conclusions about the overall economy in September.

September ISM Manufacturing PMI Price Index Falls Below 50

One positive development in ISM’s September Manufacturing PMI was the slump in the prices component to 48.3, indicating raw materials prices decreased in September after eight straight months of increases. This is another data point that confirms inflation pressures were moving in the right direction. Should we see similar data in Thursday’s September Services PMI, it will suggest further progress should be found in the September CPI and PPI reports out next week.

While that is welcome news, the market is likely to be preoccupied with escalating Middle East tensions and the port strike that, depending on how long both continue, could rekindle inflation pressures. As we have a better sense of that timing, we’ll adjust our view as needed, taking any action with the Portfolio required.

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At the time of publication, TheStreet Pro Portfolio was long LMT.