The war with Iran upended markets this month. There were losers — and winners

Markets Endured an Energy Shock, but the Damage Was Uneven

Earthguardiansonline.com – September brought a sharp reminder that financial markets do not always move in unison. The war with Iran pushed energy costs higher, unsettled bond investors and encouraged central banks around the world to raise interest rates. Brent crude oil climbed above $100 a barrel, while government-bond yields reached their highest levels in years.

Even so, the S&P 500 finished the month only 0.45% lower. That relatively modest decline stood in contrast to the turbulence in bonds, commodities and several economically sensitive industries. The result was a market in which a small group of large technology companies and energy producers helped shield the main stock index from broader weakness.

The contrast has left investors confronting an important question: how long can equities remain steady if borrowing costs and fuel prices continue to rise?

Bond Investors Take the Heaviest Hit

Bonds were among September’s clearest losers. Investors have been weighing the risk that an energy-driven inflation shock could persist, forcing central banks to maintain tighter monetary policy for longer. When yields rise, existing bonds generally lose value because their fixed interest payments become less attractive relative to newly issued debt.

That dynamic has weighed on broad bond funds throughout the year. A Vanguard exchange-traded fund that follows the total US bond market was down 5% for the year. Municipal bonds also struggled, with the iShares National Muni Bond ETF down about 6%.

Bond-market anxiety accelerated during the month. A widely watched measure of expected bond volatility jumped roughly 47% in September, marking its largest monthly increase since February 2021. Such moves can matter well beyond bond portfolios, since higher government yields influence mortgage rates, corporate borrowing costs and the way investors value stocks.

There is also a potential benefit for buyers entering the market now. Bond prices have fallen, and yields are at multi-year highs. For investors able to hold high-quality bonds over time, the income available on new purchases may be more attractive than it was only a few months earlier. That does not erase the losses already endured by existing holders, but it changes the return outlook for money invested at today’s prices.

Travel Companies Feel the Cost of Fuel

The increase in oil prices has created an especially difficult environment for companies whose operations depend heavily on fuel. Cruise operators and airlines must manage rising energy expenses while continuing to compete for consumer spending.

Norwegian Cruise Line Holdings shares fell 31% during the quarter and were down 34% for the year. It was the company’s weakest quarterly stock performance since the second quarter of 2022, when Russia’s invasion of Ukraine disrupted global markets.

Other cruise lines also faced pressure. Royal Caribbean shares declined 16% in the quarter, leaving the stock down almost 5% for the year. Carnival Corporation shares dropped 14% during the quarter and were down 20% year to date.

Carnival offered a more nuanced picture of the industry’s position. The company exceeded Wall Street earnings estimates on Tuesday, as strong consumer demand helped counter higher fuel costs. Analysts maintained that the company’s outlook remained solid, pointing to resilient demand from travelers. The performance underscores how companies can still find support from consumers even as their costs rise.

Airlines have had less room to avoid the impact of more expensive jet fuel. American Airlines shares fell 26% in the quarter and were down 13% for the year. For travel businesses, the challenge is not simply the immediate cost of fuel; sustained price increases can eventually affect ticket prices, margins and consumer decisions.

Precious Metals Lose Their Appeal as Rates Rise

Precious metals also weakened as yields and policy rates moved higher. Gold futures fell more than 6% in September. Silver declined 9%, while palladium dropped 12%.

Higher interest rates can make non-income-producing assets less compelling. Unlike bonds, gold and other precious metals do not provide interest payments, so the opportunity cost of holding them tends to increase when investors can earn more from cash or fixed-income securities. The month’s declines reflected that pressure as central banks responded to inflation concerns.

Technology Holds Up the Major Stock Index

The S&P 500’s resilience was not shared evenly across its components. Technology was one of the few areas to advance during the month, rising 5% while most S&P 500 sectors ended September lower.

Meta gained 29% during the quarter, its best quarterly performance in two years. Microsoft rose 38%, its strongest quarter since 1998. Their size was crucial to the broader market outcome. Because the S&P 500 is weighted by market capitalization, the largest companies exert the greatest influence on the index.

That concentration becomes clearer when comparing different versions of the benchmark. The conventional S&P 500 rose 2% during the quarter, but an equal-weight version of the index, which gives every constituent the same influence, fell 1.55%. In other words, the headline gain depended heavily on the performance of large technology stocks rather than a broad-based advance across corporate America.

Energy Producers Benefit From Higher Crude Prices

Oil producers and refiners were among the month’s major beneficiaries. Higher crude prices can lift revenue and profits for energy companies while encouraging additional production.

Phillips 66 surged 51% during the quarter and was up 98% for the year. Chevron gained 23% in the quarter, ConocoPhillips climbed 20%, and ExxonMobil rose 19%.

Energy and technology have become the two best-performing S&P 500 sectors this year. Their strength has helped offset declines elsewhere, but it has also made the index more dependent on a narrow set of forces: elevated energy prices and continued investor enthusiasm for the largest technology companies.

September closed the third quarter with stocks appearing calmer than bonds, metals and fuel-dependent industries. That calm may prove durable, but the gap between the stock market and the stresses visible elsewhere remains a central issue for investors heading into the next quarter.