Key Takeaways
- While US strocks declined amid disappointing jobs data on Friday, the impact of the war in Iran has been relatively benign this week.
- Oil prices on Friday spiked to their highest level since April 2024, with WTI crude oil approaching $90 per barrel.
- European stocks remain on track for their worst week since the start of the Ukraine war, while Asian stocks recorded their worst week since the pandemic.
US stocks fell at the open after weaker-than-expected jobs data and waning hopes of a near-term end to the Iran war reignited jitters. Still, they have outperformed their European and Asian peers since the beginning of the conflict last weekend.
The Morningstar US Market Index was down about 1% after Friday’s open, mirroring similar falls for the S&P 500 and the tech-focused Nasdaq 100, and on course for a weekly decline of just under 2%.
“What’s remarkable is the US indices have barely budged this week,” Neil Wilson, investor strategist at Saxo UK, says. “It suggests that the prime focus is on energy flows in the Strait of Hormuz, which is primarily a Europe/Asia problem.”
Nonfarm payroll data showed the US economy unexpectedly shed 92,000 jobs in February, while unemployment ticked up to 4.4%, adding to amplifying concerns of a slowdown in the labor market.
Meanwhile, pouring cold water on hopes for a swift end to hostilities, President Donald Trump said Friday that there would be no deal to end the US-Israeli war in Iran without Tehran’s “unconditional surrender.” European stocks’ declines accelerated following the comment on Truth Social.
Oil prices continued their march higher, following sharp swings through the course of the week, as investors digested more and more signs that the closure of the critical Strait of Hormuz may well last weeks. Brent crude oil was up 5.2% Friday at USD 90, its highest level since April 2024. WTI crude was up 8.3% at USD 88.
Among individual US stocks, chip maker Marvell Technology MRVL was the standout performer, rallying 15% after reporting “strong fiscal fourth-quarter results and an even better, raised outlook for fiscal 2027 and fiscal 2028,” according to Morningstar analysts.
The Morningstar Europe Index fell again on Friday, putting it on course for a weekly loss of about 7%, its worst week since 2022.
Markets whipsawed this week as investors digested the escalating US-Israeli war with Iran, which broke out over the weekend and quickly escalated into a regional conflict, choking off energy exports and disrupting maritime and air traffic.
One Week In, Asian Stocks Have Been Hit the Worst
With East Asian economies hevaily reliant on imports of energy products from the Middle East and on the back of a rally in the prior year, the region’s equities have suffered the worst declines among major regions.
The Morningstar Asia Index closed the week down 6.4%, its worst weekly performance since the depths of the pandemic selloff in March 2020. Korean stocks have been particularly volatile, as government intervention in the form of a USD 68 billion stabilization package reversed more than 12% of declines during Wednesday’s session.
What Comes Next?
Investors are now watching closely for the latest developments out of the Middle East, including continued disruptions to energy flows, with analysts pricing in further potential swings.
“It would take something special to reverse course at this point, some amazing earnings from big global names could help, but sentiment is hard to change and right now it’s in cautious mode,” Morningstar chief European markets strategist Michael Field says.
The ongoing conflict and the likelihood of higher energy prices has also raised the specter of inflation, prompting traders to reconsider their forecasts for central bank rate cuts.
US Treasury yields climbed this week, with the 10-year benchmark bond ticking up slightly Friday to 4.175%. Gold prices, meanwhile, hovered at USD 5,088, struggling to maintain momentum on waning rate cut bets.
Money market traders are now expecting the US Federal Reserve to lower interest rates by a total of 0.35 percentage points this year, down from 0.55 percentage points last week, according to Reuters.
“Investors are dialing back hopes for near-term rate cuts as higher energy costs threaten to filter through to consumers and keep price pressures elevated. Equities have been volatile in response, with Europe bearing the early brunt of investor concern,” Matt Britzman, senior equity analyst, Hargreaves Lansdown, says.
