Stocks fell as oil topped $100 and the US dollar strengthened on Friday, amid uncertainty over the Iran war that continued to disrupt energy supplies and deepen investor concerns about fuel prices and interest rates.
Oil prices rose even as an Indian tanker sailed out of the Strait of Hormuz, and the United States introduced measures to ease supply concerns.
All three major US stock indexes ended the day and week lower. The Dow Jones Industrial Average fell 0.25% on Friday, while the S&P 500 dropped 0.6% and the Nasdaq Composite slid 0.9%.
In Europe, the STOXX 600 declined 0.5% on Friday. MSCI’s global stocks gauge fell 0.9%, extending broader risk-off moves. Meanwhile, investors favoured the dollar as a safe haven. The greenback rose for a second consecutive week, gaining 0.8% on the day against a basket of currencies.
Oil Surges And Trump Signals Tougher Stance
President Donald Trump said the US would hit Iran “very hard over the next week,” shortly after issuing a partial 30-day waiver for purchases of sanctioned Russian oil, in an effort aimed at easing prices.
Front-month WTI crude futures settled at $98.71 a barrel, up 3.11%. Brent rose 2.67% to $103.14, settling above $100 for the first time since August 2022.
Mitch Reznick, group head of fixed income at Federated Hermes, said headlines were hitting markets “like water from a fire hose,” driving oil prices and, in turn, financial markets.
Iran War Keeps Inflation Fears And Rate Outlook In Focus
With Iran stepping up attacks across the Middle East and its new Supreme Leader, Mojtaba Khamenei, vowing to keep the Strait of Hormuz shipping lane closed, investors braced for a prolonged conflict and higher energy costs.
Read: Iran Lets Indian LPG Tankers Through Strait of Hormuz
Rising inflation concerns pushed markets to reprice expectations for central banks. Traders now anticipate just 20 basis points of easing from the Federal Reserve this year, compared with 50 basis points priced in last month.
Read: US Offers $10m Reward For Iran Supreme Leader Mojtaba Khamenei
Two-year Treasury yields, which often track expectations of Fed policy, reached a six-month high on Thursday.
On the data front, the Personal Consumption Expenditures index, the Fed’s preferred inflation gauge, rose 0.3% in January month-on-month, in line with economists’ estimates. Separately, government data on Friday showed US economic growth slowed more than previously estimated in the fourth quarter, after downward revisions to consumer spending and business investment.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, said markets remained “laser-focused” on oil and geopolitics, adding that sticky inflation data strengthens the view that the Fed will stay on the sidelines.
Interest rate futures that once priced in two quarter-point cuts by year-end now barely price in one.
In US government bonds, the two-year note yield fell 3.3 basis points to 3.73% on Friday after hitting its highest level since August 22, a day earlier. The 10-year yield ticked up to 4.283%.
In currencies, the euro fell 0.8% to $1.1417. The yen weakened to 159.66 per dollar, its weakest level since July 2024, as Japan warned it was ready to act to prevent further declines. Gold fell 1.27% to $5,014 per ounce on Friday, extending losses for the week.
