U.S. Stock Rally May Falter After Red Sea Attacks

An attack on a US warship and commercial vessels in the Red Sea on Sunday risks reigniting investor worries about a widening of the war between Israel and Hamas, potentially complicating the outlook for a rally that saw US stocks crest a fresh closing high for the year last week, Krystal Hu and Ira Iosebashvili reported for Reuters.

The S&P 500 rose nearly 9% in November on signs of easing inflation and hopes the Federal Reserve is done raising interest rates. I Photo: New York Stock Exchange Facebook

The Pentagon said it was aware of reports regarding attacks on an American warship and commercial vessels in the Red Sea on Sunday, while Yemen's Houthi group claimed drone and missile attacks on two Israeli vessels in the area.

Also on Sunday, a US military official told Reuters the US carried out a self-defense strike in Iraq against an "imminent threat" at a drone staging site.

The developments risk inflaming fears that the Israel-Hamas war could widen into a broader conflict encompassing the US and regional players like Iran. Such worries flared after Hamas’ Oct. 7 attack into southern Israel but subsided in recent weeks.

Quincy Krosby, chief global strategist at LPL Financial, said a widening conflict could push some investors to take profits on the recent rally in stocks.

The S&P 500 rose nearly 9% in November on signs of easing inflation and hopes the Federal Reserve is done raising interest rates. The index is up almost 20% on the year after notching a 2023 closing high on Friday at 4594.63.

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