Wall Street traders drove stocks to their longest weekly slide since 2022 on concern that a protracted war in Iran will keep oil prices elevated, fueling an increase in inflation and a slowdown in growth.Equity losses accelerated into the close, with the S&P 500 dropping 1.7%. The Nasdaq 100 fell into a correction, sliding over 10% from its peak. Brent topped $112. Short-dated Treasuries outperformed longer maturities. The yen weakened to 160 for the first time since 2024, raising intervention risks.
The US and Israel bombed Iranian nuclear and steel facilities on Friday, while Iran retaliated across the Persian Gulf. The escalation came after President Donald Trump pushed back his deadline for Tehran to agree to reopen the Strait of Hormuz or face strikes on power plants.
“Risk aversion continues to dominate,” said Elias Haddad at Brown Brothers Harriman & Co. “Absent full US military control of the Strait of Hormuz, Iran effectively controls the escalation lever of this war, and the balance of risks point to a deeper unraveling.”The heightened likelihood of a more persistent energy shock raises financial stability risks because it traps central banks in restrictive policy and puts government debt on a more fragile and unsustainable path, he added.
As the war in the Middle East drives up gasoline prices, data showed US consumer sentiment slid to a three-month low in March and year-ahead inflation expectations jumped.Economists raised their estimates for US inflation through year-end, while trimming consumer spending, growth and employment projections as the war in Iran drives up fuel costs, according to the latest Bloomberg monthly survey.Heightened uncertainty and headline-driven swings are pushing investors to cut risk, hedge more, and tighten liquidity, according to Mark Hackett at Nationwide.“Markets are reacting more to positioning and volatility than fundamentals,” he said. “The macro and earnings backdrop is still supportive and expectations have reset, but without clear resolution on the conflict and stabilization in energy markets, it’s hard to see a sustained move higher.”Goldman Sachs Group Inc.’s trading desk is warning investors not to turn bearish on US stocks, saying current positioning leaves the market vulnerable to a short squeeze if geopolitical tensions ease.
