Escalating tensions in the Middle East have triggered a fresh wave of declines in both stock and bond markets, as investors worry that persistently high energy costs could spill over into inflation and hinder economic growth, with no signs of the conflict easing.
As of 10:05 AM New York time, the S&P 500 index was down 0.7%, putting it on track for its longest weekly losing streak in a year. The Nasdaq 100 index fell 1%, while the Dow Jones Industrial Average declined 0.3%. The selloff in U.S. stocks accelerated following reports that the Pentagon is deploying three warships and additional thousands of Marine personnel to the Middle East.
Short-term U.S. Treasury yields edged higher, with traders now pricing in a 50% probability of a Federal Reserve interest rate hike by October. Meanwhile, U.K. government borrowing costs climbed to their highest level since the global financial crisis.
Earlier, Axios reported that the Trump administration is considering options to occupy or blockade Iran’s key oil export terminal on Kharg Island, in an effort to pressure Tehran to reopen the Strait of Hormuz.
David Laut of Kerux Financial noted, "Some investors may be reluctant to hold positions heading into the weekend, given the potential for more negative news from the Middle East."
Market volatility could also be amplified by Friday's "triple witching" event. Citigroup indicated that approximately $5.7 trillion in notional value of options tied to U.S. individual stocks, stock indexes, and ETFs are set to expire.
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