Stocks hit multi-month lows as investors rethink Fed cuts
Wall Street extended its retreat on Friday as the war involving Iran entered a fourth week and investors reassessed how long the Federal Reserve may be forced to keep interest rates elevated. The decline pushed the main US indexes to multi-month lows and reinforced the sense that markets are no longer dealing with a short burst of geopolitical stress, but with a conflict that is beginning to reshape expectations for inflation, growth and monetary policy.
The Dow Jones Industrial Average fell 210.29 points, or 0.46 percent, to 45,811.14. The S&P 500 lost 0.71 percent to 6,559.70, while the Nasdaq Composite dropped 0.99 percent to 21,872.10. Earlier in the session, losses had been even steeper, reflecting just how fragile investor sentiment remains. All three indexes were heading for a fourth straight week of declines and remained below their 200-day moving average, a sign that recent weakness is turning into a more persistent trend.
The market mood was driven by more than one headline. Investors were reacting to a widening Middle East conflict, higher long-term Treasury yields and growing doubts that the Fed will be able to deliver the rate cuts that had once been expected this year. Together, those factors have created a far more defensive environment for equities.
War and oil are reshaping the Fed outlook
The central issue for markets is that the conflict is now feeding directly into energy prices and, by extension, inflation expectations. Reports that the Trump administration may be considering additional action against Iran, along with signs of a larger US military buildup in the region, added to fears that the war could intensify rather than cool down in the near term.
That matters because the Federal Reserve is already struggling to assess how much damage the oil shock could do to the broader economy. Earlier this week, the central bank acknowledged that the war had made the outlook less certain. On Friday, Fed Governor Christopher Waller added to that tension by suggesting that he had been inclined to support a rate cut because of unexpected job losses, but had been forced to reconsider because rising oil prices threatened to push inflation higher.
Markets have responded by shifting rate expectations sharply. Investors now appear far less convinced that the Fed will cut this year, and some are beginning to price a non-negligible chance of a rate increase before year-end. Even if that proves too aggressive, the repricing itself is enough to weigh on risk assets.
Bond markets and volatility add to the pressure
The change in expectations was also visible in sovereign debt markets. The yield on the 30-year Treasury note rose 8 basis points and briefly touched its highest level since September. Higher yields reduce the appeal of equities by lifting financing costs and lowering the relative attractiveness of future earnings, particularly for growth stocks and other sectors sensitive to interest-rate assumptions.
Friday’s session was further complicated by triple witching, the quarterly simultaneous expiry of stock options, index options and futures. These sessions often increase trading volume and can amplify price swings. In a market already shaken by war and policy uncertainty, that mechanical boost to activity made it easier for volatility to feed on itself.
The CBOE volatility index climbed to 25.31, signaling a clear rise in investor anxiety. Market breadth was also weak, with declining stocks heavily outnumbering advancing ones on both the New York Stock Exchange and the Nasdaq. This was not a narrow sell-off led by a few names. It was a broad retreat across most of the market.
Energy holds up while the rest of the market weakens
The only notable pocket of strength remained energy. The S&P 500 energy sector rose 1.5 percent and stayed on track for a 13th straight weekly gain, which would mark the longest winning streak in its history. The move reflects the market’s continued belief that geopolitical disruption is likely to keep oil prices elevated even if broader equities remain under pressure.
Elsewhere, weakness was widespread. Ten of the eleven S&P 500 sectors traded lower, with real estate and utilities among the biggest losers as rising bond yields hit rate-sensitive parts of the market. The small-cap Russell 2000 fell 1.2 percent and had briefly reached a 10 percent drop from its record high earlier in the week, underscoring how vulnerable smaller domestic companies are to tighter financial conditions and slower growth.
Individual stock moves added to the uneven picture. Super Micro Computer plunged 28 percent after people linked to the company were charged with smuggling billions of dollars of AI technology to China, while rival Dell rose 6 percent. FedEx advanced after issuing upbeat forecasts and saying global demand remained steady despite geopolitical tensions. But those isolated gains did little to alter the broader message of the session. Investors are becoming more cautious as war, higher yields and policy uncertainty collide, and the market is increasingly behaving as though the road back to easier conditions will be much longer than expected.
