Wall Street edges up ahead of Fed's decision, Middle East tensions

Major Wall Street indices posted modest gains on Tuesday as investors await the Federal Reserve’s interest rate decision amid rising energy costs driven by the escalating conflict in the Middle East.

Shares of airlines and travel companies, which are sensitive to fuel costs and had come under heavy selling pressure recently, saw some recovery after Delta Air Lines and American Airlines raised their revenue forecasts for the current quarter. Delta shares rose more than 4%, while American Airlines gained 2.7%.

However, concerns about prolonged supply disruptions due to the near-total closure of the Strait of Hormuz continue to support oil prices around $100 per barrel. These concerns, along with inflationary pressures stemming from tariffs, are a key focus of the Federal Reserve meeting, as policymakers balance inflation risks against signs of weakness in the labor market.

The central bank begins its two-day meeting on Tuesday, with traders widely expecting interest rates to remain unchanged in the decision scheduled for Wednesday. Data compiled by LSEG indicates that markets now price in only one 25-basis-point rate cut by the end of the year, compared with expectations of nearly two cuts before the outbreak of the war.

Brokerage firms have raised their energy price forecasts, which are likely to weigh on economic growth, a factor also highlighted by the Reserve Bank of Australia when it raised interest rates earlier in the day.

The interest rate-sensitive financial sector index rose 0.8%, recovering from sharp losses in the previous week when concerns about private credit quality unsettled investors.

Shares of asset managers Blackstone and Apollo Global Management rose more than 3% each, while KKR gained about 3%.

As of 12:07 PM Eastern Time, the Dow Jones Industrial Average rose 72.20 points, or 0.15%, to 47,021.88, while the S&P 500 gained 14.91 points, or 0.22%, to 6,714.29, and the Nasdaq Composite rose 53.68 points, or 0.24%, to 22,427.86.

The CBOE Volatility Index, known as Wall Street’s fear gauge, fell 0.62 points to 22.89, its lowest level in more than a week.

Energy stocks rose, with Occidental Petroleum gaining 1.3% alongside peer EQT Corporation, while ConocoPhillips climbed about 2%, supported by higher oil and gas prices.

Despite global disruptions caused by the war, US equities have shown greater resilience compared with their counterparts in Europe and Asia, amid expectations that the impact of the conflict on the economy will be less severe.

However, analysts indicate that investors have not yet fully priced in the implications of the war for the global economy.

The conflict has also led to the postponement of a planned summit between US and China leaders at the request of President Donald Trump.

In other moves, Eli Lilly shares fell 5.2% after HSBC downgraded the pharmaceutical company to “reduce” from “hold.”

Meanwhile, Uber shares rose 5.1% after announcing plans to launch autonomous taxi services in 28 cities starting next year, using Nvidia’s self-driving software.