U.S. equities extended their declines on Friday as Wall Street concluded a fifth consecutive week in the red, marking its lengthiest losing streak in nearly four years. The S&P 500 dropped by 1.7%, marking its worst week since the onset of the conflict with Iran. Similarly, the Dow Jones Industrial Average shed 793 points, or 1.7%, slipping more than 10% from its previous high set a month ago, while the Nasdaq composite declined by 2.1%.
The Dow now joins the Nasdaq in confirming a correction, defined as a 10% drop from a prior peak. Throughout the week, the U.S. stock market experienced fluctuations between gains and losses as optimism and pessimism surrounding a potential resolution to the conflict waxed and waned.
In contrast, the main Canadian stock index closed marginally higher, supported by gains in the basic materials sector. The S&P/TSX composite index ended the day up 73.13 points at 31,960.65.
Following the disappointing trading day on Thursday, U.S. President Donald Trump offered a glimmer of hope by extending the deadline for Iran’s power plant destruction until April 6, contingent on the resumption of oil tanker movements from the Persian Gulf through the Strait of Hormuz.
While oil prices initially retreated post-Trump’s announcement, signaling optimism for the Strait of Hormuz’s stability, they resumed their ascent as trading shifted from Asia to Europe and eventually to Wall Street.
Despite Trump’s repeated postponements, the conflict persisted in the Middle East, with Iran showing no signs of backing down and Israel threatening to escalate its attacks. This diplomatic uncertainty between the U.S. and Iran unsettled investors, leading to diminished risk appetite by week’s end.
Oil prices surged, with Brent crude climbing 3.4% to $105.32 per barrel, up from approximately $70 before the conflict commenced. The prevailing concern in financial markets is the potential disruption to oil and natural gas production and transportation in the Persian Gulf, which could trigger significant inflationary pressures globally.
If the conflict lingers until the end of June, analysts at Macquarie project oil prices could soar to $200 per barrel, an all-time high. On Wall Street, most stocks, particularly tech giants like Amazon and Meta Platforms, experienced declines, reflecting the market’s unease amidst the ongoing geopolitical tensions. The broader implications include potential price hikes for consumers, businesses, and energy-related costs, amplifying economic challenges.
Global stock markets and bond yields reacted to the uncertain environment, with Treasury yields fluctuating notably. The 10-year Treasury yield surged to 4.48% before retreating to 4.43%, up from 3.97% pre-conflict, impacting mortgages and loan rates.
The recent market turmoil underscores the far-reaching consequences of geopolitical conflicts on financial markets and the broader economy, emphasizing the need for stability and resolution to mitigate further disruptions.