Markets extend losses as war fears deepen
Wall Street ended the week under renewed pressure as investors responded to rising concern that the war involving Iran may last longer than previously hoped, keeping energy prices elevated and complicating the outlook for inflation. Friday’s selloff pushed major benchmarks lower again and sent the Dow Jones Industrial Average into correction territory, a sign that anxiety over the macroeconomic impact of the conflict is spreading across asset classes.
The Dow fell 793 points, or 1.73 percent, to close at 45,167. That left the blue chip index down 10 percent from its peak above 50,000 reached in February. The S and P 500 declined 1.67 percent, while the Nasdaq dropped 2.15 percent. All three indexes ended at their lowest levels since August, underscoring how quickly sentiment has deteriorated as oil markets tighten and investors reassess the path for growth and interest rates.
The Nasdaq, which had already slipped into correction territory on Thursday, closed Friday more than 12.5 percent below its October record. That deeper decline reflects the particular vulnerability of technology shares when markets begin to expect higher borrowing costs and softer economic momentum. Investors had already been questioning rich valuations in parts of the tech sector, and the energy shock has added another layer of pressure.
The S and P 500 has now fallen 3.4 percent over two sessions, marking its worst two day drop since April, when tariff uncertainty rattled financial markets. The benchmark is now down 8.74 percent from its late January high, moving closer to its own correction threshold.
Oil surge drives inflation worries higher
The dominant force behind Friday’s market decline was the continued rise in crude prices. Oil settled at its highest levels since the conflict began, as investors grew more doubtful that diplomatic efforts would produce a quick resolution. Brent crude rose 4.22 percent to 112.57 dollars a barrel, while U.S. crude gained 5.46 percent to settle at 99.64 dollars after briefly crossing the 100 dollar mark during the session.
The move in energy fed directly into concerns that inflation may remain more stubborn than expected. Higher oil prices can quickly filter through transportation, manufacturing and consumer fuel costs, raising the risk that price pressures stay elevated even if other parts of the economy cool. That prospect has made investors more cautious about how soon the Federal Reserve will be able to ease monetary policy.
Doug Beath, global equity strategist at Wells Fargo Investment Institute, said the disconnect in diplomatic signals between Washington and Tehran unsettled investors this week. The market reaction suggested that traders are increasingly focused not only on the immediate geopolitical risk, but also on the possibility that an extended conflict could keep commodity prices high and reduce the room for policy support.
Bond yields and dollar strength add pressure
Treasury yields moved sharply higher as markets adjusted to the possibility of inflation and interest rates staying elevated for longer. The yield on the 10 year Treasury reached 4.48 percent, its highest level since July, before easing back to around 4.43 percent. The 30 year yield briefly touched 5 percent, a closely watched threshold, before trading near 4.97 percent. At the end of February, before the conflict began, the 10 year yield stood at 3.96 percent.
Higher yields are a problem for equities in several ways. They raise discount rates, which tends to hurt growth stocks most, and they also make bonds more attractive relative to shares. That dynamic has become more visible as investors seek safer returns while volatility spreads through the stock market.
The dollar also gained support. The U.S. dollar index rose 0.2 percent, helped by safe haven demand and by expectations that the Federal Reserve may keep rates steady in response to inflation risks. Glen Smith, chief investment officer at GDS Wealth Management, said stocks remain highly correlated to oil prices, meaning higher crude has translated directly into weaker equity performance. He also noted that higher bond yields can pull investor money away from stocks.
Risk appetite weakens across markets
The recent drop has become increasingly broad. The Dow and the S and P 500 have both declined for five straight weeks, marking their longest run of weekly losses in almost four years. That pattern suggests the weakness is no longer limited to a single sector or a short term reaction to headlines. Instead, investors appear to be repricing the wider economic consequences of the conflict, particularly for inflation, corporate margins and monetary policy.
The tech heavy Nasdaq has led the decline, in part because it entered this period with higher valuations and greater sensitivity to the outlook for rates. Smith said it is not surprising that the index moved into correction territory before the broader S and P 500, given that technology stocks were already under scrutiny before the war because of concerns over valuation and questions surrounding returns on artificial intelligence spending.
Market sentiment indicators reflected that darker mood. CNN’s Fear and Greed index remained in extreme fear and fell to its lowest reading since November. Risk aversion was also evident in digital assets, where bitcoin dropped 3.6 percent to trade near 66,000 dollars. For now, investors appear to be treating higher oil, firmer yields and diplomatic uncertainty as a difficult combination, with little confidence that the pressure will ease quickly.
