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

Markets Endure Iran-Driven Shock as Technology and Energy Offer Support

Activelifezero.com – September closed with financial markets sending sharply different signals. Bonds suffered one of their most difficult stretches in years, oil prices climbed above $100 a barrel and central banks raised rates around the world. Yet the broad US stock market barely moved: the S&P 500 slipped only 0.45% for the month.

That calm headline number masks significant strain beneath the surface. Investors have been weighing the inflationary effects of the Iran-related energy shock against tighter monetary policy, while the gains of a relatively small group of major technology companies have helped shield the index from wider losses.

The final day of September also ended the third quarter, providing a clearer view of which assets and industries absorbed the most damage — and which benefited from the changing economic backdrop.

Bonds Face the Heaviest Pressure

Bond prices fell as yields climbed to multi-year highs. The move reflected anxiety that more expensive energy could feed inflation and keep central banks committed to higher interest rates. Because bond prices generally move in the opposite direction of yields, existing bondholders saw the value of their holdings decline.

For diversified bond investors, the results have been weak. A Vanguard exchange-traded fund that follows the total US bond market is down 5% this year. Municipal debt has also been under pressure, with the iShares National Muni Bond ETF lower by roughly 6% for the year.

Volatility reinforced the unease. A widely watched measure of expected bond-market swings rose about 47% in September, its largest monthly increase since February 2021. Such a jump points to a market confronting unusually large uncertainty around inflation, interest-rate policy and the knock-on effects of higher energy costs.

There is, however, a potential upside for investors entering the market now. Falling bond prices have made many funds less expensive than they were only months ago, while higher yields can provide more attractive income for new buyers. That benefit does not erase recent losses, but it changes the income outlook for investors considering bonds as part of a long-term portfolio.

Travel Companies Feel the Cost of Fuel and Rates

Industries sensitive to fuel expenses and consumer financing conditions were among the month’s clearest casualties. Cruise operators, in particular, struggled as higher energy prices increased operating costs and rising rates added pressure across the economy.

Norwegian Cruise Line Holdings shares fell 31% during the quarter and are down 34% so far this year. It was the company’s worst quarterly showing since the second quarter of 2022, when markets were reacting to the early stages of Russia’s war with Ukraine.

Other cruise companies also posted notable declines. Royal Caribbean shares dropped 16% in the third quarter, leaving them down nearly 5% for the year. Carnival Corporation shares declined 14% in the quarter and have fallen 20% this year.

Carnival nevertheless offered a reminder that demand remains an important counterweight to cost pressure. The company beat Wall Street earnings estimates on Tuesday, aided by strong consumer demand that helped offset higher fuel costs. Analysts continued to view the outlook as solid, pointing to resilient travel demand.

Airlines have faced similar challenges because jet fuel is a major expense. American Airlines shares dropped 26% during the quarter and are down 13% this year, illustrating how quickly an energy-price surge can affect businesses with large fuel requirements.

Precious Metals Lose Their Appeal as Yields Rise

Gold, silver and palladium also retreated during the month. Gold futures fell more than 6%, silver lost 9%, and palladium declined 12%.

Higher interest rates can make non-income-producing assets less compelling because investors can earn more from bonds and other interest-bearing securities. The rise in yields and central-bank rates therefore created a difficult environment for precious metals, even as geopolitical uncertainty remained elevated.

Megacap Technology Keeps the S&P 500 Afloat

The limited decline in the S&P 500 was driven largely by technology. Meta shares rose 29% during the quarter, while Microsoft gained 38%. Meta recorded its strongest quarter in two years, and Microsoft posted its best quarterly performance since 1998.

Technology stocks rose 5% in September even though most S&P 500 sectors finished the month lower. Their influence is especially powerful because the index is weighted by market capitalization: the larger a company’s market value, the greater its effect on the benchmark.

The contrast is evident in an equal-weight version of the index, where every company has the same influence. While the standard S&P 500 gained 2% during the quarter, the equal-weight index fell 1.55%. The gap highlights how dependent the market’s apparent stability has become on a handful of large technology names.

For investors, that divergence matters. A nearly flat headline index can obscure substantial losses across many companies, while strong performance from the largest firms can make the overall market look healthier than the average stock experience suggests.

Energy Producers Benefit From Higher Crude Prices

The oil rally created a much more favorable environment for energy companies. Higher crude prices can improve producer earnings and encourage additional production, making the sector one of the clearest beneficiaries of this year’s market conditions.

Phillips 66 shares surged 51% in the third quarter and are up 98% this year. Chevron gained 23% over the quarter, ConocoPhillips rose 20%, and ExxonMobil added 19%.

Energy and technology now stand as the top two S&P 500 sectors for the year. Their gains have helped offset weakness elsewhere, but the market’s split performance leaves investors facing an unsettled question: whether stocks can continue resisting the pressure from elevated yields, expensive oil and increasingly volatile bond markets.