Stocks retreated and oil climbed as Iran intensified its rhetoric against Israel after an explosion at a Gaza hospital that complicated diplomatic efforts to rein in the Middle East conflict.

The S&P 500 dropped 1.3 per cent, led by losses in megacaps as Treasury yields rose. Tesla Inc. slumped nearly 5 per cent. Morgan Stanley sank the most since 2020 as profit fell on an investment-bank slowdown. United Airlines Holdings Inc. tumbled almost 10 per cent after warning the Israel-Hamas war and higher jet fuel costs would weigh on earnings. West Texas Intermediate oil approached U.S.

90 a barrel, before trimming gains.

“The risks of an escalation have risen on the back of the latest news reports regarding the hospital bombing,” said Jane Foley, head of foreign-exchange strategy at Rabobank. While there have been few signs of panic, “on any clear escalation, we can expect to see a ratcheting up of risk aversion,” she said.

Traders also sifted through Fedspeak and the latest Beige Book for clues on the central bank’s next steps. The outlook for the U.S. economy is stable or may show softer expansion, the Federal Reserve said in its survey of regional business contacts.

Fed Bank of New York President John Williams said rates will have to stay at restrictive levels “for some time” to bring inflation back to the central bank’s target. Meantime, Governor Christopher Waller noted policymakers can wait and gather more data before deciding if the economy needs further monetary restraint.

“We just don’t know how long inflation is going to remain elevated, which in turn raises question marks about the longevity of high interest rates,” said Fawad Razaqzada, market analyst at City Index and Forex.com. “Judging by recent data in the U.S., oil prices and Fed commentary, it can be a long time before the Fed starts cutting rates again.” 

Fed Chair Jerome Powell is set to speak at the Economic Club of New York on Thursday.

There’s been a lot of investor anxiety on whether upside economic surprises could lead the Fed to tighten further, according to Krishna Guha at Evercore. 

However, we think Powell will stick to the message delivered by Vice-Chair Philip Jefferson that the data has been strong, “but there has also been a big move in yields, which has tightened financial conditions,” Guha added. “So no urgency for a policy response in November and the Fed can adopt a wait-and-see approach.”

Corporate Highlights

• Procter & Gamble Co. reported sales and profit that surpassed analysts’ estimates as higher prices bolstered the business despite a lower volume of products sold.
• Nasdaq Inc. reported sales that beat expectations after the initial public offering market picked up last quarter.
• U.S. Bancorp said profit fell in the third quarter as the biggest U.S. regional lender increased its provisions for credit losses.
• Interactive Brokers Group Inc. tempered its guidance for accounts growth.
• Ally Financial Inc. posted third-quarter profit that beat analyst estimates even as consumers struggled to make loan payments.
• ASML Holding NV orders plunged in the third quarter amid a sector-wide slump in the semiconductor industry that has left the company increasingly reliant on revenue from China.
• Abbott Laboratories narrowed its annual profit forecast as it beat estimates for quarterly results, citing growth in medical devices for heart disease and diabetes.
• Spirit AeroSystems Holdings Inc. restructured key supplier contracts with its biggest customer, Boeing Co., to stem the aircraft-parts maker’s deteriorating financial performance, speed production and improve build quality.

Key events this week:

• Australia unemployment, Thursday
• Japan trade, Thursday
• China property prices, Thursday
• U.S. initial jobless claims, existing home sales, leading index, Thursday
• Federal Reserve Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan speak at different events, Thursday
• Japan CPI, Friday
• China loan prime rates, Friday
• Philadelphia Fed President Patrick Harker speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 1.4 per cent
• The Dow Jones Industrial Average fell 1 per cent
• The MSCI World index fell 1.3 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.4 per cent to $1.0535
• The British pound fell 0.4 per cent to $1.2140
• The Japanese yen was little changed at 149.89 per dollar

Cryptocurrencies

• Bitcoin fell 0.8 per cent to $28,244.17
• Ether was little changed at $1,561.69

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.90 per cent
• Germany’s 10-year yield advanced four basis points to 2.92 per cent
• Britain’s 10-year yield advanced 15 basis points to 4.66 per cent

Commodities

• West Texas Intermediate crude rose 1.7 per cent to $88.16 a barrel
• Gold futures rose 1.4 per cent to $1,963.50 an ounce