On Friday, the US stock market experienced a significant downturn driven by mounting concerns over escalating tensions in the Middle East. Investors turned to traditional safe-haven assets like bonds and gold amidst fears of potential conflict and its potential impact on global stability.
The Dow Jones Industrial Average plummeted by 475 points, or 1.2%, during the trading session, with both the S&P 500 and the Nasdaq Composite also experiencing sharp declines of 1.5% and 1.6%, respectively. This marked a notable downturn for all three major indexes, with the week ending on a negative note.
The catalyst for the market turmoil was the announcement from the White House regarding heightened alertness in the US and Israel for a potential attack by Iran or its proxies. This alert followed an Israeli strike in Damascus, raising concerns about the possibility of retaliatory actions and further escalation of tensions in the region.
The geopolitical uncertainty surrounding the situation in the Middle East had an immediate impact on oil prices, causing a significant spike during Friday’s trading. Brent crude futures, the international benchmark, settled at $90.45 per barrel, with West Texas Intermediate crude futures climbing to $85.66 per barrel. The prospect of disruptions to oil supplies due to potential conflict added to market jitters and contributed to the overall negative sentiment.
Chicago Federal Reserve President Austan Goolsbee expressed concerns about the implications of escalating tensions for inflation and production costs. He warned that a sudden surge in oil prices could lead to a “negative supply shock,” potentially resulting in a stagflationary environment where economic growth stagnates while prices continue to rise.
In response to the heightened uncertainty and risk aversion among investors, safe-haven assets witnessed increased demand. Gold futures surged, reaching a settlement price of $2,356.20 per troy ounce, as investors sought refuge from market volatility and geopolitical risks. Treasury yields, on the other hand, declined as traders sought the safety of government bonds, leading to a rise in prices.
The market turbulence coincided with the beginning of the first-quarter earnings season, adding to investor unease. JPMorgan Chase CEO Jamie Dimon highlighted geopolitical turmoil and persistent inflation as significant concerns, emphasizing the potential impact of high oil and gas prices on the global economy.
Despite the cautious stance of investors and concerns about the outlook for monetary policy, some Federal Reserve officials have suggested that interest rate hikes could still be on the table if progress on inflation stalls. This uncertainty regarding the future trajectory of monetary policy further contributed to market volatility and investor anxiety.
Overall, the market sentiment, as measured by CNN’s Fear & Greed Index, closed at a “neutral” reading, reflecting the prevailing sense of caution and uncertainty among investors amidst geopolitical tensions and economic challenges.