US-Iran war effect: The US stock market remained under pressure for the fourth straight week. The S&P 500 index lost over 2.50% last week, losing market capitalisation of over $1 trillion. The key benchmark index of the US stock market has been under pressure since the fear of a US-Iran war began weighing on Wall Street. In one month, the index has fallen 5.83%, erasing over $3 trillion in market cap.
US stocks have ended lower for the fourth week in a row — the longest losing streak in a year. The Bloomberg report says the benchmark S&P 500 finished below its 200-day moving average on Thursday, a key level of the market’s overall health that could trigger forced selling.
Why is the US stock market falling?
According to stock market experts, the US stock market is falling amid fading hopes for a quick resolution to the US-Iran war. The overstretch of the US-Iran war has driven crude oil prices higher, renewing fears of inflation and leaving central banks with no room to cut interest rates.
Sameer Samana, Head of Global Equities and Real Assets at Wells Fargo Investment Institute, told Bloomberg, “Given recent volatility, today could almost be described as unchanged, but clearly the bias has been lower. I think the true test of today will be what investors decide to do at the close, before the weekend.”
The market is bracing for increased volatility as about $5.7 trillion in notional options tied to individual stocks, indexes, and exchange-traded funds were due to expire on Friday. The quarterly event that traders call “triple-witching” has a reputation for triggering unexpected price swings as large pools of derivatives exposure abruptly vanish. Friday’s tally is the largest March expiry, according to Citigroup Inc. data dating back to 1996.
Lower interest rates would give the economy and investment prices a boost, and they’re something President Donald Trump has angrily been calling for. Before attacks by the United States and Israel began the war with Iran, traders were betting heavily that the Fed would cut interest rates at least twice this year.
But lower rates risk worsening inflation. And with oil prices so much higher now, investors see little room for central banks worldwide to cut interest rates to help their economies. Besides the Federal Reserve, central banks in Europe, Japan and the United Kingdom also held their interest rates steady this past week.
US-Iran war in focus
Iran went ahead with attacks on Arab states in the Persian Gulf even after Israel signalled it would refrain from hitting the Islamic Republic’s energy infrastructure. Axios reported the US is considering plans to take over Iran’s key oil-export site Kharg Island to add pressure on Tehran to reopen the Strait of Hormuz.
“I think that the market is right now coming to grips with the reality that higher energy prices are going to persist longer than expected,” said Mark Malek, chief investment officer at Siebert Financial. “It is clear that the Iranian regime turned to the last page in its playbook: MAD, mutually assured destruction.”
Fading hopes of a US-Fed rate cut
On Wednesday, Federal Reserve Chair Jerome Powell said officials will not lower interest rates until inflation cools, as it was too early to determine the impact of rising oil prices on the US economy. The central bank left rates steady for a second straight meeting.
“We think the Fed staying on hold remains the most appropriate positioning,” said Deborah Cunningham, chief investment officer for global liquidity markets at Federated Hermes. “The current conflict with Iran is nowhere near the magnitude of the disruptions seen during COVID, nor the 2008 global financial crisis, so there is no justification for cutting rates by hundreds of basis points.”
(With inputs from PTI, Bloomberg)
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