US markets close mixed amid Iran intervention concerns
US equity markets closed mixed on Friday in cautious trading ahead of potential US intervention in the Iran-Israel conflict. For the week, the US 500 (S&P 500) finished 0.15% lower, while the US Tech 100 (Nasdaq 100) fell 0.02% and the Wall Street added 9 points (0.02%).
US strikes Iranian nuclear sites over weekend
These concerns proved well-founded after the US conducted strikes with B-2 Stealth Bombers on three Iranian nuclear sites over the weekend and has since claimed the attacks “obliterated” Iran’s nuclear capabilities. The US insists the strikes were aimed at halting Iran’s nuclear ambitions, not regime change, but Trump’s rhetoric suggests openness to further action. From Israel’s perspective, it may push for additional US support to ensure Iran’s nuclear program remains crippled and a more friendly regime in Iran is installed.
Iran vows response and potential retaliation
Iran has vowed to respond, with officials warning of “everlasting consequences.” Possible actions include missile or drone strikes on US or Israeli targets, cyberattacks, or asymmetric attacks via proxies like Hezbollah or Houthi rebels, though their capabilities are weakened.
Risks to global trade and historical context
Iran may also consider disrupting global trade by closing the Strait of Hormuz; however, we continue to think that this is unlikely due to its impact on its main customers, China and India. With that last point in mind, we highlight that while most flashpoints in the Middle East over the past five decades generally cause only temporary spikes in crude oil prices, the largest and longest-lasting increases typically arise from regime changes.
At this point, the market response has been one of caution as we await further details on what comes next and, more precisely, what the response from the Iranian regime will be.
Oil prices surge, equity futures dip and safe haven demand
WTI Crude oil futures opened at $78.00, hit a high of $78.40, and have since eased to $75.92 (+1.29%). US 500 equity futures are down 0.35%, at 5997 following their reopening. The US dollar is modestly bid against the Japanese yen at 146.40 (+0.2%), likely partly due to Japan being a large energy importer. Meanwhile, Bitcoin is back trading above $100k after a dip to $98,420 early this morning.
Key data to watch this week
Looking ahead, beyond assessing the fallout from the weekend’s events in Iran, US equity markets may begin to feel the impact of month-end and quarter-end rebalancing flows, which are suspected to involve selling of US stocks and the buying of bonds.
On the data front, there will be keen interest in key data, including the Flash PMIs, Durable Goods, and the Fed’s preferred measure of inflation, the Core PCE price index previewed below. It is important to note that the PCE inflation data precedes the 24.5% rise in crude oil prices this month.
