The Middle East war market impact is becoming more uneven as the conflict approaches its eighth week, with investors treating different asset classes and regions in sharply different ways. US stocks have erased all the losses recorded since the war began, but oil prices remain painfully high and continue to weigh on bonds and gold.
The divergence is also growing across emerging markets. Brazil and China have attracted stronger investor interest, while smaller economies that depend heavily on imported energy are facing far greater pressure.
The S&P 500 has recovered to pre-war levels after rallying 9% from its March 30 low. The index closed Monday at 6,886.24, above its February 27 finish before the United States and Israel began airstrikes in Iran. The rebound has been supported by last week’s ceasefire and hopes that peace talks could resume.
At the same time, oil continues to tell a far more difficult story. Prices have fallen from their March highs, but at around $100 a barrel, they still remain about 40% above late-February levels. Refiners are also paying more than $140 a barrel for North Sea crude for near-term delivery, almost double the pre-war rate.
Bonds and Gold Struggle Under Inflation Pressure
Bond markets are showing much more strain than equities. Higher energy prices are driving inflation expectations and making central banks more cautious about cutting interest rates. As a result, borrowing costs in the United States, Europe and Japan remain well above the levels seen before the war.
The US two-year Treasury yield is around 3.76%, roughly 40 basis points above late-February levels, while Britain’s two-year yield is about 75 basis points higher. Gold has also lost ground and remains almost 10% below pre-war levels, as investors reportedly sold profitable positions to cover losses elsewhere.
Currency markets have shown more restraint. The dollar index is now just above its February 27 closing level after giving back most of the gains it made earlier in the conflict. The euro has recovered nearly all of its recent losses, while the pound has returned to pre-conflict levels.
Regional performance has also split sharply. Europe’s STOXX 600 is down 2.6% from pre-war levels, while Germany’s DAX has fallen 5%. Japan and Korea have also come under pressure as energy importers. In contrast, Brazil’s main equity index is 5% above pre-war levels, and the real has strengthened 2.7% against the dollar. Norway’s crown has also gained more than 1%.
Read: Oil Prices Surge Above $100 as US-Iran Talks Stall
China stands apart in another way. Although it imports large amounts of oil, its reserves and low domestic inflation have helped attract inflows into government bonds and support gains in green energy shares.
