Stocks and Bonds Slide as Iran Escalation Fears Drive Oil Higher – US Market Wrap
Renewed turmoil in the Middle East triggered another selloff in both stocks and bonds, as fears of a deeper escalation in the war with Iran pushed oil prices sharply higher and heightened concern about the broader economic fallout.
The decline in equities accelerated, with the S&P 500 falling 1.5% after reports indicated the Pentagon is preparing to deploy ground forces. President Donald Trump said the US remains open to dialogue with Iran, but made clear he is not seeking a ceasefire. Speculation also grew that Washington may be considering a move to seize Iran’s Kharg Island oil export hub. Brent crude climbed above $112 a barrel.
Treasury yields moved higher as traders increased bets that the Federal Reserve may be forced to tighten policy if energy-driven inflation intensifies. Markets are now pricing in a 50% chance of a Fed rate hike by October. Gold headed for its worst week in decades.
Markets have been rattled by severe disruption to energy flows from the Persian Gulf, with traffic through the Strait of Hormuz close to a standstill. Trump also criticized military allies, including NATO members and China, for not doing more to help reopen the vital shipping route that carries roughly one-fifth of the world’s oil and natural gas supply.
US officials said the White House is sending hundreds of Marines to the Middle East.
Federal Reserve officials have also signaled that the jump in oil prices is becoming an important factor for the policy outlook, even as they continue to monitor signs of weakness in the labor market and the broader impact of the conflict on growth and inflation.
