US stocks wrapped up the week on a downward trajectory as the ongoing conflict with Iran continued to disrupt projections related to oil prices, economic growth, and inflation. The Morningstar US Market Index recorded a decline of less than 1.6% this week, marking a total drop of approximately 4.2% since the conflict began.
After an initial dip fueled by optimistic comments from President Donald Trump regarding a potential swift resolution, oil prices saw a substantial rise towards the week’s end. With the Strait of Hormuz—a crucial passage for oil transport—at the heart of the turmoil, the global economy is grappling with significant supply chain challenges. The West Texas Intermediate benchmark closed the week at $98 per barrel, a dramatic increase from about $65 per barrel prior to the outbreak of hostilities.
Despite substantial volatility and an increasingly clouded economic outlook, financial markets showed remarkable resilience. The Morningstar US Market Index experienced a brief rally on Monday and Tuesday but ultimately ended the week in the red. The bond market mirrored these sentiments, with the yield on the 10-year US Treasury note climbing from 4.198% at the beginning of the week to 4.286% by Friday, as investors adjusted to the new geopolitical landscape.
Analysts noted that stock losses have been surprisingly contained given the heightened volatility and uncertainty surrounding the conflict. Anthony Saglimbene, chief market strategist at Ameriprise Financial, highlighted strong underlying fundamentals as a key factor in this resilience. “Corporate profits are growing, and the employment backdrop was pretty solid,” he remarked, emphasizing that the economy was in a relatively strong position heading into this period of uncertainty.
However, with the war escalating and the ramifications on oil markets still unfolding, experts caution that volatility will likely remain a fixture in the near term. Jeff Schulze, head of economic and market strategy at ClearBridge Investments, suggested that until there is clarity on the duration of the supply disruptions, market trends could tilt downward.
Disparities among different sectors also characterized market performance this week, largely driven by oil prices. Energy stocks emerged as the top performers, gaining 1.88% over the week and 3.23% since the onset of the conflict, while the financial services sector experienced a tougher week, falling by 3.37%. Olaolu Aganga from Citi Wealth pointed out that while the overall market reaction may appear muted, significant variations exist within sectors.
Looking toward the future, many Wall Street analysts believe that the long-term outlook remains stable. The underlying factors that have supported stocks—like robust corporate earnings and sustained economic growth—may continue to cushion the market’s responses to geopolitical risks. Aganga noted that historical patterns indicate that the effects of such disturbances can diminish over time, although the precise duration of the current disruption remains uncertain.
Despite the challenges posed by elevated oil prices, some analysts are optimistic about the US economy’s strength this year, with expectations that investors will ultimately distance themselves from short-term shocks.
