US financial markets faced significant turmoil as stocks and bonds took a considerable hit while oil prices surged and gold suffered its worst loss in decades, largely attributed to ongoing conflicts in Iran.
On Friday, the Russell 2000 index, which features smaller companies that typically react more sensitively to interest rate changes, fell 2.26%, marking a correction territory with a 10.3% decline from its peak in January. The broader indices similarly faced losses: the Dow dropped 444 points or 0.96%, the S&P 500 declined by 1.51%, and the Nasdaq decreased by 2.01%. Wall Street’s volatility indicator, the VIX, surged by 11%, reflecting heightened investor anxiety.
During trading, the Nasdaq briefly entered correction territory, plunging 9.65% from its late October peak. The S&P 500 and Dow also showed significant drops, down 6.77% and approximately 9.2% from their peaks in February and January, respectively. Both the S&P and Nasdaq finished at their lowest levels since September, effectively erasing six months of gains, while the Dow recorded its lowest close since October.
The conflict in Iran is primarily driving energy prices higher, raising concerns about inflation and complicating the global economic outlook. Investors grapple with uncertainty surrounding the conflict’s duration and the potential for prolonged higher interest rates intended to combat inflation, casting a shadow over stock valuations.
On Friday, US Treasury yields escalated as investors moved away from bonds in response to shifting inflation expectations. The 10-year Treasury yield climbed to 4.39%, its highest since July, making mortgages more expensive. José Torres, a senior economist at Interactive Brokers, noted that initial expectations of a short conflict have changed dramatically, leaving investors facing simultaneous losses in both stock and fixed-income assets.
The downturn was not confined to US markets alone. The UK also saw its 10-year bond yield rise above 4.9%, the highest since 2008, as London’s FTSE 100 index fell by 1.44%. The sentiment was further exacerbated when reports emerged about potential troop deployments by the Trump administration, adding to investors’ caution.
Gold faced a notable decline, slumping 2% on Friday, which brought its weekly losses to over 10%—the worst performance for the metal since 1983. In stark contrast, oil prices increased significantly, with Brent crude rising 3.26% to settle at $112.19 per barrel, its highest during the ongoing conflict and the highest closing price since July 2022. US crude oil also increased by 2.27%, reaching $98.32 per barrel.
The Dow marked four consecutive weeks of declines, the longest losing streak in three years, while the S&P 500 also dropped for four weeks in a row, its longest stretch of losses in a year. David Laut, the chief investment officer at Kerux Financial, remarked that the market remains in negative territory for the year, suggesting that it may not yet have found its bottom in light of the Middle East conflict and the uncertain outlook for oil prices.
