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Middle East Tensions Halt Rebound
11-Apr-18 16:20 ET
Dow -218.55 at 24189.45, Nasdaq -25.27 at 7069.03, S&P -14.68 at 2642.19

https://www.briefing.com/investor/markets/stock-market-update/2018/4/11/middle-east-tensions-halt-rebound.htm

[BRIEFING.COM] A two-session rebound came to an end on Wednesday, as an imminent U.S. strike on Syria gave equity investors cause for pause.

The Dow Jones Industrial Average led the major averages lower, ending with a loss of 0.9%, while the S&P 500 and the Nasdaq Composite finished lower by 0.6% and 0.4%, respectively. The small-cap Russell 2000 outperformed, however, finishing with a gain of 0.2%.

Investors have been waiting for a response from the U.S. following a suspected chemical attack from the Syrian government on the rebel-held town of Douma that killed at least 40 people over the weekend. However, the situation escalated on Wednesday morning when Russia, which supports Syrian President Bashar al-Assad, warned that it would shoot down any missiles fired at Syria -- to which U.S. President Donald Trump replied "get ready Russia, because they will be coming."

Unconfirmed reports that Saudi Arabia intercepted a missile over its capital Riyadh -- presumably launched by Houthi rebels in Yemen who have targeted Saudi territory before -- added to the uncertainty within the region. Oil prices rose once again, hitting a three-year high, in anticipation that increased tensions in the oil-rich Middle East could lead to a slowdown in production; West Texas Intermediate crude futures finished higher by 2.0% at a price of $66.82 per barrel.

The S&P's energy sector rallied amid the increase in crude prices, adding 1.0%, but nearly all other sectors finished in the red. The heavily-weighted financial sector finished near the bottom of the sector standings, losing 1.3%, outdone only by the telecom services group, which lost 1.5%. A curve-flattening trade in the Treasury market weighed on lenders, which depend on the difference between the interest they make on loans and the rate they pay out on deposits; the benchmark 10-yr yield slipped one basis point to 2.79%, while the 2-yr yield ticked up one basis point to 2.32%.

Minutes from the March FOMC meeting were released on Wednesday afternoon, but contained few surprises. The minutes showed that a number of Fed officials anticipate the path of rate increases to be slightly steeper than they previously expected -- which is in line with the so-called "dot plot" released at the end of the March meeting -- and revealed that they had an in-depth discussion around trade tensions, which all members agree present "downside risks" to the economic outlook.

Investors also received some inflation data on Wednesday; namely, the March CPI readings. Total CPI decreased 0.1% (Briefing.com consensus +0.1%), while core CPI, which excludes the volatile categories of food and energy, increased 0.2% (Briefing.com consensus +0.2%). Year-over-year, total CPI was up 2.4% in March (vs +2.2% in February) and core CPI was up 2.1% (vs +1.8% in February). In short, the report showed a firming (though not scary) inflation trend that will keep the Federal Reserve wedded to its tightening bias and its belief that at least two more rate hikes are warranted this year.

Separately, the Treasury Budget for March showed a deficit of $208.7 billion versus a deficit of $176.2 billion for the same period a year ago.

News networks were focused on the second, and final, day of Mark Zuckerberg's testimony on Capitol Hill. Mr. Zuckerberg, who is the chief executive at Facebook (FB 166.32, +1.28), appeared before a joint hearing of the House Energy and Commerce Committees, answering questions regarding the Cambridge Analytica data scandal and Russia's use of Facebook in attempting to influence the 2016 U.S. presidential election. Facebook shares finished higher by 0.8%, adding to Tuesday's 4.5% rally.

Nasdaq Composite: +2.4% YTD
Russell 2000: +0.7% YTD
S&P 500: -1.2% YTD
Dow Jones Industrial Average: -2.1% YTD