Stock market today: Indexes extend losses as traders watch Middle East tensions

• US stocks slumped on Wednesday, extending their losses for the start of the month.
• Oil prices surged after Iran attacked Israel, fueling the sell-off.
• Investors are still optimistic about rate cuts, with a 25 basis point move expected in November.

US stocks dropped Wednesday as traders continued to monitor escalating tensions in the Middle East.

Major indexes slumped in early morning trading while oil prices spiked for a second day, with the international crude benchmark up 2.7% to $75.63 a barrel. US crude prices rose about 3% to $72.06 a barrel.

Investors sold stocks Tuesday after Iran launched a missile attack on Israel early Tuesday, causing some to flee to risk-off assets.

Should the conflict escalate, that could affect oil production and transportation infrastructure in Iran, the one of the world's largest oil producers, strategists at TS Lombard said in a note.

"Escalating tensions in the Middle East are helping to spark a textbook risk-off move, with increased volatility and a flight to safety," Mary Ann Bartels, the chief investment strategist of Sanctuary Wealth said in a statement. "The stock market impact of geopolitical tensions largely centers around oil prices, and as long as oil prices remain below $100 per barrel and corporate profits remain strong, that is supportive of higher stock prices."

Despite a volatile start to the month, investors are still feeling bullish about stocks over the longer-term, given expectations for more Fed rate cuts. Markets are pricing in a 66% chance the Fed will cut rates another 25 basis points in November, according to the CME FedWatch tool.

"While the stock market is grappling with a variety of worries including escalating tensions in the Middle East, a port strike and election uncertainty, liquidity is key and there is plenty of it now that the Fed has started to cut interest rates, and that means that markets can continue to grind higher," Bartels added.

Here's where US indexes stood shortly after the 9:30 a.m. opening bell on Wednesday:

• S&P 500: 5,682.74, down 0.47%
• Dow Jones Industrial Average: 42,012.18, down 0.34% (-144.79 points)
• Nasdaq composite: 17,821.71, down 0.49%

Here's what else is going on:

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In commodities, bonds, and crypto:

• West Texas Intermediate crude oil moved higher 2.81% to $71.79 a barrel. Brent crude, the international benchmark, rose 2.5% to $75.37 a barrel.
• Gold edged lower 0.37% to $2,651.31 an ounce.
• The 10-year Treasury yield surged up five points to 3.802%.
• Bitcoin slumped 4.25% to $60,889.