U.S. Markets Tank With Geopolitical Uncertainty
U.S. shares plummeted Friday as the standoff between Israel and Iran escalated into full-blown military action. The Dow Jones Industrial Average dropped 1.79%, wiping out the week’s earlier gains. The S&P 500 and Nasdaq declined 1.13% and 1.30%, respectively.
Investors were driven out of risk assets after Israel unleashed attacks on Iranian missile and nuclear facilities. Iran retaliated with missile attacks during the final hours of U.S. trade, prompting market-wide volatility.
Oil and Defense Stocks Rally on Conflict Fears
Oil prices surged as fears of Middle Eastern supply disruption grew. Brent crude rose over 7%, briefly spiking 14% in Asian trading. West Texas Intermediate crude approached $74 a barrel.
Energy and defense shares topped the list. ExxonMobil rose around 2%, Lockheed Martin and RTX both rose around 3% as investors scrambled for defense-related holdings as conflict risk increased.
Gold also rose 1.4% to $3,432 an ounce, near record highs, as investors scrambled for safe-haven assets.
Oil and Defense Stocks Rally on Conflict Fears
The geopolitical shock resonated around the globe. European and Asian indices fell over 1%, capturing Wall Street’s risk-off mood. U.S. Treasury yields, which had been decreasing on safe-haven buying, reversed their course. The 10-year yield rose by 7.9 basis points to 4.436%.
The dollar also strengthened, 0.5% against a basket of major currencies, as investors preferred stability amid rising uncertainty.
Trump Warns Iran, Talks Collapse
Former President Donald Trump urged Iran to return to the nuclear negotiating table, threatening consequences after the regime missed a 60-day deadline. Iran struck back by saying it would cancel scheduled talks with U.S. envoys.
The diplomatic collapse raised fears of prolonged instability in the region and further energy price shocks.
Consumer Sentiment Creeps Up Amidst Turmoil
Amidst the geopolitical upheaval, domestic data offered a pleasant surprise. The University of Michigan consumer sentiment index in June climbed to 60.5, above expectations, and reflecting economic strength.
Yet, with oil prices rising and global tensions spreading, inflation fears are re-emerging, and doubts persist regarding the Federal Reserve’s next move.
Outlook: Inflation Risks and Market Uncertainty
As tensions between Israel and Iran rise, investors are once more subjected to inflation risk and doubts regarding monetary policy from the central bank. Markets are likely to remain turbulent in the short term as they absorb geopolitical occurrences.
