Biggest Loss In 3 Weeks As Iran-Israel Conflict Escalates

Topline

Geopolitical concerns returned to Wall Street after Israel struck Iran in a move President Donald Trump indicated the U.S. was aware of, causing stocks to slump and oil prices to shoot higher Friday, and impacting these stocks the most.

Friday is on pace to be the largest loss for the Dow in three weeks.

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Key Facts

All three major U.S. indexes fell noticeably by early afternoon: The bluechip Dow Jones Industrial Average slipped 1.4%, or 580 points, the S&P 500 dropped 0.7% and the tech-heavy Nasdaq also declined 0.7%.

Friday is on pace to be the worst day since May 21 for each benchmark.

Stocks dropped worldwide on the heightened tensions, as Europe’s Stoxx 600, Japan’s Nikkei 225 and Hong Kong’s Hang Seng indexes each fell more than 0.5% Friday.

Non-equity markets flashed signs of a far weaker risk appetite for investors.

Gold prices shot up more than 1% to about $3,450 per troy ounce and Brent crude oil prices spiked more than 6% to $74 per barrel, while cryptocurrency tokens bitcoin and ether slumped 2% and 4% in the 24-hour period ending 1 p.m. EDT, respectively.

Read more on the latest developments on the Israel-Iran conflict here.

Crucial Quote

“The initial market response has been largely contained, but the risk of a broader military conflict certainly cannot be dismissed,” LPL Financial’s chief equity strategist Jeff Buchbinder wrote in emailed comments. “If Iranian oil production is significantly disrupted, oil has the potential to go much higher – well into triple digits,” warned Buchbinder.

Wall Street Signals Fear

The Chicago Board Options Exchange’s volatility index, or VIX, surged 14% to a three-week high Friday. The metric, often referred to as Wall Street’s fear gauge, tracks the market’s expectations for significant stock market swings via S&P options contract activity over the next 30 days.

Big Tech Stocks Sink And Oil Stocks Rally

Among the notable U.S. stocks sliding at least 0.5% Friday were Apple, American Express, JPMorgan Chase, Microsoft, Nvidia and Visa. Shares of American energy giants Exxon Mobil (up 2%), Chevron (up less than 1%) and ConocoPhillips (up 1%) all enjoyed a boost from the oil price spike.

Surprising Fact

Should gains hold, Friday will be the largest single-day increase in oil prices since March 2022, during the early stages of Russia’s invasion on Ukraine. Brent crude is up 15% over the last two months.

Contra

Unlike the 2022 episode in which higher oil prices on geopolitical conflict translated into soaring inflation, the Iran-Israel confrontation is unlikely to result in significantly higher prices in the U.S., according to Marko Papic, chief strategist at BCA Research. “Any inflationary spike from oil prices would be temporary and highly unlikely to invite any action from global central banks,” Papic wrote in a late Thursday note to clients. The Federal Reserve hiked rates from near zero to more than 5% between March 2022 and August 2023 in response to the inflation episode partially linked to the Russian invasion and its impact on commodity prices.