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Investors rush to safe havens like Treasuries and gold

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Oil prices jump amid fears of supply disruptions

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Upcoming U.S. election and jobs report add to market

uncertainty

By Saqib Iqbal Ahmed

NEW YORK, Oct 1 (Reuters) -

Stocks tumbled on Tuesday and investors rushed to safe-haven

assets such as Treasuries and the dollar, after Iran fired a

salvo of ballistic missiles at Israel. Iran said the attack was

a retaliation for Israel's campaign against Tehran's Hezbollah

allies in Lebanon. Israel said the attack was serious and would

have consequences.

The S&P 500 sank as much as 1.4% but later pared

losses to close down 0.9%, while the Nasdaq Composite Index lost

as much as 2.3% but also rebounded to finish the day 1.5% lower.

Buying was heavy in popular destinations for nervous investors

such as gold, Treasuries and the dollar.

Past bouts of heightened geopolitical tension, such as Russia's

invasion of Ukraine in 2022, resulted in sharp but short-lived

market moves during which investors fled risky assets and piled

in to safe havens such as gold and the dollar.

This time around, further market reaction could depend on

Israel's response and whether the conflict between the two

archenemies escalates, investors said.

"The market ... is highly sensitive to any scenario worse

than this," said Hasnain Malik, head of emerging and frontier

markets equity strategy at Tellimer.

A previous round of Iranian missiles fired at Israel in April -

the first ever - were shot down with the help of the U.S.

military and other allies. Israel responded at the time with

airstrikes in Iran, but wider escalation was averted.

Stocks and other risky assets sold off in April but

rebounded within days as fears of a broader conflict and

economic disruption dissipated.

However, "if the war escalates, that of course is not good

for markets," said Allan Small, senior investment adviser with

Allan Small Financial Group with iA Private Wealth in Toronto.

One specific concern for investors is oil prices, which jumped

on Tuesday. Investors worry that the fears of supply disruptions

of crude oil from the Gulf region will drive prices sharply

higher, as has happened during prior periods of intense strain

or conflict.

"The deeper the conflict intensifies, oil could indeed surge

higher as risk rises that the military response veers into the

oil producing area around Iran," Quincy Krosby, chief global

strategist for LPL Financial, said in a note.

Beyond tensions in the Middle East, there are several potential

market catalysts that could keep investors on edge, including

the upcoming U.S. election in November and a key jobs report

this week that will help shape the Federal Reserve's policy

direction.

The Cboe Volatility Index, an options-based indicator

of demand for protection from market swings, rose to a

three-week high of 20.73 on Tuesday, before paring gains to

trade at 19.25.

"Although the VIX is edging higher it remains sufficiently

just below 20 to suggest that markets - including the crude oil

market - do not yet envision an all-out military scenario,"

Krosby said.

Meanwhile, pricing on SPDR S&P 500 Trust ETF options

expiring on Nov. 8, just three days after the U.S. election,

imply a move of nearly 2% for the S&P 500 Index-tracking ETF on

expiration day, according to options analytics service ORATS.

"This reflects traders' expectations of significant market

volatility surrounding the election," ORATS founder Matt

Amberson said.

Nearer-term, traders remain focused on the September

payrolls report due on Friday, with SPY options primed for a

1.1% swing on the day, signaling expectations for potential

surprises in the unemployment data, Amberson said.

For now, market participants are left guessing whether the

latest bout of fear will prove fleeting. "Markets, hence, are

likely to display an incredibly high sensitivity to incoming

geopolitical news flow in the coming hours," said Michael Brown,

senior research strategist at Pepperstone.