US close: Stocks rise as dovish Fed comments offset Middle East conflict

Wall Street stocks put in decent gains on Monday, shrugging off geopolitical fears in the Middle East and surging oil prices, after members of the Federal Reserve suggested that the US central bank may hold off from hiking interest rates for now.

After a subdued start to the trading session, stocks raced higher following the remarks, with the Dow and S&P 500 finishing up 0.6% and the Nasdaq rising 0.4%.

Scheduled speeches from Fed vice chair Philip Jefferson and Dallas Fed president Lorie Logan were making headlines, after they both highlighted how the recent spike in Treasury yields may have altered their outlook since the last policy meeting.

Jefferson said policymakers would "remain cognisant of the tightening in financial conditions through higher bond yields" when setting out the path for monetary policy. Logan, similarly, suggested that elevated bond yields may be doing some of the work for the Fed in keeping financial conditions restrictive enough "to restore price stability".

"If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the Fed Funds Rate," Logan said.

The next Federal Open Market Committee meeting is not for another three weeks, though the minutes from the most recent conference will be out this Wednesday.

US bond markets were closed on Monday for Columbus Day and Indigenous Peoples Day, but futures trading showed that the demand for government debt had risen on the back of safe-haven investments.

Crude prices, which dropped sharply last week, were rebounding strongly over the weekend after a surprise attack by Hamas on Israel on Saturday morning, killing more than 700 people, including 260 at a music festival. Israel swiftly retaliated launching air strikes in Gaza, which are said to have killed more than 500.

West Texas Intermediate crude gained 4.3% to $86.38 a barrel, while Brent rose 4.2% to $88.15.

“Friday’s payroll report pushed out expectations of a US recession, giving oil room to rally, and the weekend’s events have only underlined the absence of any potential supply increases," said analyst Chris Beauchamp from IG.

Oil stocks surge

Oil and gas stocks were rising strongly across the board as crude prices jumped. ExxonMobil, Chevron, Conocophillips, EOG Resources and Occidental Petroleum all finished with impressive gains.

Also higher in response to the Middle East conflict were defence contractors, such as RTX Corp, Northrop Grumman and Lockheed Martin.

Conversely, airlines were struggling, with United Airlines, American Airlines, Delta Air Lines and Southwest Airlines all finishing with heavy losses.

Disney was also rising after activist investor Nelson Peltz raised his stake to over 30m shares, worth over $2.5bn, through his firm Trian Fund Management. Peltz is said to be pushing for multiple seats on the board.