Khaberni - U.S. stocks declined on Friday as hopes for the Federal Reserve to cut interest rates this year dwindled due to the ongoing war with Iran.
According to Reuters, the Standard & Poor's 500 index fell by 0.8%, heading towards recording its fourth consecutive week of losses, which is its longest streak of declines in years. The Dow Jones Industrial also fell 220 points, a 0.5% drop, by 12:54 PM Eastern Time, while the Nasdaq Composite lost 1.3%.
Stocks faced pressure due to rising Treasury yields, as higher yields increase the cost of mortgages and borrowing for U.S. families and companies, which could burden the economy and pressure the prices of all types of investments.
U.S. bond yields have been continuously rising since the beginning of the war, fearing that the war would cause a long-term rise in oil and gas prices, which could lead to increased inflation.
Brent crude is the standard for about three-quarters of the oil produced globally, while West Texas Intermediate (WTI) crude is used as a primary indicator for U.S. oil prices.
Concerns have peaked to the extent that traders have almost completely canceled their bets on the Federal Reserve cutting interest rates this year, according to data from the CME Group. Some even believe that the Federal Reserve might raise interest rates in 2026, a scenario that was almost impossible before the outbreak of the war.
Ann Meliti, head of equity investments at Allspring Global Investments, said, "I think this will cause disruption in the market." She added, "If oil prices stay high for a long period, it's likely to negatively affect the economy, which might make the Federal Reserve hesitant to raise interest rates."
Reducing interest rates is a stimulant for the economy and investment prices, and President Donald Trump was one of the most vocal advocates of this before the war with Iran, as traders were expecting before the crisis that the Federal Reserve would cut interest rates at least twice this year.
However, lowering interest rates may increase inflation, and investors now see that central banks around the world have limited scope to support their economies through interest rate cuts. Alongside the Federal Reserve, central banks in Europe, Japan, and the United Kingdom kept interest rates steady last week.
Concerns on Friday coincided with fluctuations in oil prices, as Brent crude increased by 0.8% to $109.54 per barrel after a morning drop, while West Texas Intermediate crude surged by 3.6% to $99.64 per barrel.
Brent crude has seen sharp fluctuations since the start of the war, being priced around $70 per barrel before the crisis, amid market attempts to gauge the duration of the war and the extent of damage it will do to oil and gas production.
The U.S. stock market has a history of relatively quick recovery from conflicts in the Middle East, as long as oil prices do not remain high for a long period. Meliti said, "Oil prices have not yet reached a dangerous level, but we are approaching it if the war lasts longer." She added, "If we find ourselves in this situation after three months, I and many other investors will be more cautious."
She explained that companies can adapt to gradual increases in oil prices, but they become less able to adjust their business models quickly if the sudden rise turns into a long-term situation.
On Wall Street, shares of Super Micro Computer fell 27.2% after the U.S. government accused the vice president and other employees of conspiring to smuggle advanced computer servers to China. The company confirmed its cooperation with the investigation, suspended the accused employees, and terminated its relationship with one of the contractors.
Conversely, FedEx's stock rose by 1.6% after announcing earnings that exceeded analysts' predictions for the last quarter.
In terms of bonds, the yield on 10-year U.S. Treasury bonds jumped to 4.38% from 4.25%, and from 3.97% before the start of the war. The yield on two-year bonds, which more accurately reflects Federal Reserve expectations, rose to 3.88% from 3.79%, approaching its highest level since the summer.
Outside of Wall Street, European indices fell after significant losses on Thursday, while Chinese indices dropped, but the South Korean Kospi index rose by 0.3%.
