By Martin Baccardax
Stocks likely will face a secondary headwind over the coming months -- alongside the surge in global crude prices -- that could add further pressure to a market that already is more than halfway toward correction territory heading into the final stretch of the first quarter.
Oil prices have gained more than 50% since the U.S.-led war with Iran began at the end of last month, with Brent crude futures hitting the highest levels since 2022 during a frenetic session Thursday. That, alongside bets that oil prices may not return to pre-war levels until the spring of 2027, has ratcheted up global inflation forecasts.
Central banks, meanwhile, are expected to react with higher interest rates and traders have started to factor in policy tightening from the Bank of England, the Bank of Japan, and the European Central Bank over the coming months.
Nascent rate hike bets also have been working their way into the montage of options for the Federal Reserve following Chairman Jerome Powell's press conference on Wednesday that indicated he and his colleagues couldn't exclude the possibility of raising rates.
Bond markets have moved swiftly to reprice those rate hikes, as well, with benchmark 2-year Treasury note yields rising another 5 basis points to 3.875%. That marks an increase of nearly 50 basis points increase since the start of the U.S.-Iran war.
Benchmark 10-year notes, meanwhile, traded north of the 4.3% mark in early Friday dealing, marking a gain of 10 basis points for the week and a 25-basis-point gain since the end of last month.
In Britain, 10-year gilt yields touched the highest levels since 2008 on Friday, and were last trading at 4.929% as investors priced in both a Bank of England rate hike and faster inflation prospects for the world's fifth-largest economy.
Germany's 10-year bund yield, a proxy for risk-free rates in the eurozone, was just shy of 3%, the highest since 2007.
In financial market arithmetic, a higher risk-free interest rate lowers the present value of future profits, the most basic component of stock prices, and holds down gains for broader indexes as a result.
"Our takeaway from this week of central bank decisions hasn't changed: not enough guidance has been offered to dent oil's role as a major market driver," said ING's foreign exchange strategist, Francesco Pesole. "Rate expectations should remain fluid and commodity price dependent, and continue to play a secondary role for currency markets."
That said, S&P 500 futures were moving in lockstep with the early rise in Treasury yields on Friday, which was delayed somewhat by the close of cash trading in Japan during the Vernal Equinox holiday, and now suggest a decline of around 20 points.
That could drag the index back to the lowest levels since Nov. 20, and deepen its 3.5% decline for the year. The S&P 500 closed below its 200-day moving average, a key forward indicator for technical analysts, for the first time since March of last year.
The Cboe Group's benchmark volatility gauge, the VIX, also was on the move, trading 2.4% higher at 25.7, a level that suggests daily swings of around 1.6%, or 106 points, for the S&P 500 over the next month.
Friday also marks the regular quarterly expiration of a series of both futures and options on indexes and single stocks, known as "quadruple witching hour."
"Friday's quadruple witching tends to bring about increased intra-day volatility, which may be exacerbated this time around as this stock market has already been on edge for weeks heading into Friday, given uncertainty from the Middle East conflict and what higher oil prices may mean for consumer spending and earnings," said David Laut, chief investment officer at Kerux Financial.
"The past few Friday trading sessions have been challenging since the Iran war began, as some investors can be hesitant to maintain their positions heading into the weekend when more negative headlines from the Middle East can emerge," he added.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 20, 2026 07:38 ET (11:38 GMT)
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