US stocks fell and losses in bonds deepened as tensions over the Iran war showed no signs of easing, raising fears of prolonged disruption in energy markets and a surge in inflation. Brent briefly rose above $85.
In a widespread selloff, the S&P 500 fell 2% to its lowest level since December. As rising energy prices weigh on the ability of central banks to keep inflation under control, traders are now betting on lower chances of two Federal Reserve rate cuts in 2026. Ten-year yields were set for their biggest two-day advance since April. The dollar increased. Gold stopped its four-day rise.
“Markets are reassessing for the risk of a more extended Iran war,” said Krishna Guha at Evercore. “The period of high oil and gas is important.”
stock is running
- The S&P 500 fell 2.1% as of 10:15 a.m. in New York
- Nasdaq 100 fell 2.1%
- The Dow Jones Industrial Average fell 2.3%
- Stoxx Europe 600 fell 3.3%
- MSCI world index fell 2.6%
The Iran war echoed across the Middle East, with Tehran sending missiles at Qatar, Bahrain and Oman. Doha said the goals are not limited to military interests. Israel said it attacked a leadership compound in Tehran and sent troops into southern Lebanon. Two drone strikes occurred near the US embassy in Riyadh, causing limited damage.
An adviser to Iran’s Islamic Revolutionary Guard Corps commander told state TV that the military would “open fire on any ship that tries to pass through the Strait of Hormuz.” While oil production in the region is largely unaffected, flows through vital shipping lanes have been “significantly impacted,” the International Energy Agency said in a document seen by Bloomberg News.
Currencies and Bonds
- Bloomberg dollar spot index rose 1.1%
- The euro fell 1.2% to $1.1548
- The British pound fell 1% to $1.3271
- The Japanese yen fell 0.2% to 157.75 per dollar
- Yields on 10-year Treasuries rose four basis points to 4.07%
- Germany’s 10-year yield rose six basis points to 2.77%
- UK 10-year yield rose 14 basis points to 4.51%
According to Fawad Razaqzada at Forex.com, any tips flowing through this chokepoint could be restricted, which is enough to destabilize commodity desks, and recent developments have done just that.
“Markets are trading from headline to headline. Energy is bid up, equities are uneasy, and volatility is back on the agenda. Much will depend on whether tensions stabilize – or whether this proves to be the start of a prolonged disruption in global supply,” he said.
About 95% of stocks in the S&P 500 fell. The Russell 2000 index of smaller companies fell 3.5%. The yield on 10-year Treasuries rose six basis points to 4.09%. The dollar rose 1%.
According to Jennifer McCain at Capital Economics, prolonged conflict in the Middle East would cause oil to consistently reach $90-$100, which would be a significant headwind for the global economy.
“Importers such as the eurozone will suffer the most, while the loss of production and export capacity will limit gains for exporters in the Middle East,” he said. “Central banks should respond to this shock by avoiding further rate hikes to limit the adverse effects, but cuts will likely be delayed.”
check items
- West Texas Intermediate crude rose 8.4% to $77.18 a barrel
- Spot gold fell 5.4% to $ 5,035.53 an ounce
- Brent crude briefly went above $85/barrel
Barring a prolonged disruption in global oil supply, the conflict is unlikely to automatically end the cyclical stock bull market that has peaked since 1907, according to Ed Clissold and Thanh Nguyen of Ned Davis Research, who have tracked crisis events for decades.
He said that during the incident itself the market had fallen by an average of 7% and an average of 3%. Once the crisis passes, the market recovers, on average, within a few months. Exceptions occur when a crisis damages the economy, such as the collapse of Bear Stern in 2008 or the Arab oil embargo in 1973.
“Assuming that hostilities subside in the coming days or weeks, we would expect the market reaction to be similar to most crisis events,” NDR strategists said.
corporate highlights
- Target Corp. forecast better-than-expected profit for the full year, showing that the big-box retailer’s turnaround plans are starting to yield results.
- Best Buy Co. reported better-than-expected profit during the holiday-shopping season.
- Apple Inc updated its two main laptop computer lines, adding faster processors to the MacBook Air and MacBook Pro and raising prices amid an industrywide memory crisis.