The war in Iran, which began on February 28, has caused sharp volatility in global financial markets, with oil prices surging to multi-year highs and U.S. stock indices entering correction territory.
Oil Market Impact
- Brent crude oil rose 4.22% to $112.57 per barrel on Friday, its highest level since 2022, up from around $73 before the conflict.
- The surge is driven by the effective closure of the Strait of Hormuz and disruptions to Middle Eastern oil facilities, raising supply concerns.
U.S. Stock Market Decline
- The Dow Jones Industrial Average has fallen 10% from its record high on February 10, entering correction territory.
- The S&P 500 is down 7.84% from its peak in late January, and the Nasdaq Composite is also in correction.
- "The conflict has significantly influenced the market landscape, creating a highly dynamic and unpredictable environment," said Ed Egilinsky, managing director at Direxion. "Investors ought to prepare for continued volatility within equity markets, as prices may swing in either direction until more definitive guidance is available."
Bond Yield Increase
- The yield on the 10-year U.S. Treasury note climbed to 4.48% on Friday, its highest since July, before closing at 4.43%.
- Yields rose as investors sold bonds and adjusted expectations for inflation and Federal Reserve policy, shifting from anticipated rate cuts to potential hikes.
- "That’s what’s striking fear in the hearts of bond investors," said Robert Tipp, head of global bonds at PGIM Fixed Income. "We’re seeing markets begin to question whether there will not only not be cuts, but may in fact be hikes."