Wall Street Falls As Prolonged Middle East Conflict Dampens Sentiment

The delay failed to reassure markets, with oil prices rising as investors remained sceptical about the prospects of an agreement.

The S&P 500 and Nasdaq remained on track for a fifth consecutive week of losses, while the Dow was set to end the week largely unchanged.

Source : Pexel

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Wall Street’s main indices fell on Friday as the month-long Middle East war continued to drag on, denting investor sentiment amid uncertainty over any potential de-escalation.

US President Donald Trump said on Thursday he would again extend a deadline asking Iran to reopen the Strait of Hormuz or face the destruction of its energy plants, after Tehran rejected a 15-point US proposal aimed at ending the conflict.

The delay failed to reassure markets, with oil prices rising as investors remained sceptical about the prospects of an agreement.

Markets Driven By Headlines, Analysts Say

“Financial markets remain headline-driven. Investors are being buffeted by US claims that progress is being made to end hostilities, while Iran denies that any serious negotiations are taking place,” said David Morrison, senior market analyst at Trade Nation.

“It seems obvious that neither side is close to accepting the other's conditions for peace, so for now, the war continues.”

Indices Extend Losses, Volatility Rises

The S&P 500 and Nasdaq remained on track for a fifth consecutive week of losses, while the Dow was set to end the week largely unchanged.

The CBOE Volatility Index (.VIX), considered Wall Street’s fear gauge, rose 2.56 points to 30.

At 10:09 AM ET, the Dow Jones Industrial Average fell 1.06 per cent, the S&P 500 declined 0.94 per cent, and the Nasdaq Composite dropped 1.27 per cent.

Tech, Consumer Stocks Under Pressure

The S&P 500 communication services index fell 0.9 per cent, with Alphabet and Meta declining 1.2 per cent and 1.7 per cent, respectively.

Software stocks also came under pressure, with the iShares Expanded Tech-Software sector ETF dropping 3.4 to a more than one-month low.

Consumer discretionary stocks lost 1.4 per cent,  per cent while Carnival Corp slipped 1.3% after lowering its annual adjusted profit forecast.

Oil Surge Hits Airlines

Oil prices rose nearly 3 per cent, weighing on airline stocks. American Airlines and United Airlines both fell 1.2 per cent.

On Thursday, the Nasdaq ended more than 10 per cent below its record close, confirming it had entered correction territory. The Russell 2000 had already confirmed a correction last Friday.

Correction, Not Bear Market: Experts

“The speed of the market's declines in recent weeks and the fact that most of this fear has been driven by a single narrative, geopolitical tensions, suggests that the market is in the midst of a correction, and not a bear market,” said Glen Smith, chief investment officer at GDS Wealth Management.

Inflation Fears Cloud Rate Outlook

The spike in oil prices due to the Iran conflict has reignited inflation concerns, complicating the outlook for interest rate cuts by central banks.

Money market participants are no longer pricing in any easing from the US Federal Reserve this year, compared with expectations of two rate cuts before the conflict, according to CME’s FedWatch Group. The probability of a rate hike in December was last at 49 per cent.

Consumer Sentiment Dips; Fed Commentary Awaited

University of Michigan data released on Friday showed consumer sentiment at 53.3, down from a preliminary reading of 55.5.

Investors are also awaiting remarks from regional Federal Reserve Presidents Thomas Barkin, Mary Daly and Anna Paulson later in the day.

Among individual stocks, Unity Software surged 11.7 per cent after reporting first-quarter preliminary revenue above analysts’ estimates.