Stocks Finish Lower as Iran War Spurs Inflation Concerns

The S&P 500 Index ($SPX) (SPY) on Thursday closed down -0.27%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.29%.  March E-mini S&P futures (ESH26) fell -0.24%, and March E-mini Nasdaq futures (NQH26) fell -0.25%.

Global stock and bond markets settled lower on Thursday on concerns that the world’s central banks will tighten monetary policy to keep inflation in check as energy prices soar amid an escalating war in Iran.  US stock indexes added to Wednesday’s sharp losses on Thursday, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 falling to 3.75-month lows. 

However, stocks recovered most of their early losses on Thursday when WTI crude oil prices (CLJ26) gave up an early rally and sold off after Israel said it is helping the US open the Strait of Hormuz.  Crude prices also tumbled after Treasury Secretary Bessent said the US will continue to take steps to add supplies to oil markets, including the possible removal of sanctions on Iranian crude already in transit or a new unilateral release of emergency crude reserves.

Stocks initially sold off on Thursday amid hawkish comments from the BOE, ECB, and BOJ that pushed global bond yields higher, as they warned that the Iran war poses upside inflation risks, fueling speculation that the central banks may pursue tighter monetary policies.  The 10-year German Bund yield rose to a 2.25-year high of 3.01%, the 10-year T-note yield rose to a 6.75-month high of 4.32%, and the 10-year UK Gilt yield climbed to a 14-month high of 4.91%.   

European natural gas prices surged more than +13% to a 3-year high on Thursday after Qatar reported “extensive damage” at the world’s largest natural gas export plant at Ras Laffan Industrial City.  Qatar said Iran’s strikes damaged 17% of Ras Laffan’s LNG export capacity, which will take 3 to 5 years to repair.

Stocks were also pressured on Thursday as bond yields rose further on stronger-than-expected US economic data from weekly jobless claims and the Mar US Philadelphia Fed business outlook survey.  However, T-note yields fell back from their highs after Jan new home sales fell more than expected to a 3.25-year low.

US weekly initial unemployment claims unexpectedly fell -8,000 to a 9-week low of 205,000, showing a stronger labor market than expectations of an increase to 215,000.

The Mar US Philadelphia Fed business outlook survey unexpectedly rose +1.8 to a 6-month high of 18.1, stronger than expectations of a decline to 8.0.

US Jan new home sales fell -17.6% m/m to a 3.25-year low of 587,000, weaker than expectations of 722,000.

President Trump on Thursday pressed for de-escalation of attacks on Middle East energy sites, following Iranian and Israeli strikes on major gas fields, which pushed energy prices sharply higher.  Mr. Trump said the US wasn't involved in the South Pars attack and said Israel would refrain from further strikes on the site.  However, crude prices bounced higher again after the semi-official Iranian Students' News Agency (ISNA) said Iran's response to the attacks on its energy infrastructure "is underway and not yet complete."  Iran said it will target energy infrastructure in Saudi Arabia, Qatar, and the UAE in retaliation for US and Israeli airstrikes on its South Pars gas field and its Asaluyeh oil industry facilities.  Crude also found support after US Energy Secretary Chris Wright said Thursday that the US will not implement a crude export ban. 

Crude oil prices remain high despite attempts to boost global supplies. The IEA last Wednesday released 400 million barrels from emergency oil stockpiles and said the war against Iran is disrupting 7.5% of global oil supply, and the conflict will cut global oil supply by 8 million bpd this month.  The closure of the Strait of Hormuz, through which about a fifth of the world’s oil and natural gas flows, has choked off oil and gas flows due to Iran’s attacks on shipping in the waterway and forced Gulf producers to cut output because they can’t export from the region.  Iran has attacked about 20 vessels in the Persian Gulf and near Hormuz since the conflict began.  Goldman Sachs warns that crude prices could exceed the 2008 record high of close to $150 a barrel if flows through the Strait of Hormuz remain depressed through March.

The markets are discounting a 6% chance for a -25 bp FOMC rate hike at the April 28-29 policy meeting.

Overseas stock markets settled sharply lower on Thursday.  The Euro Stoxx 50 fell to a 1.5-week low and closed down -2.14%.  China's Shanghai Composite dropped to a 2.5-month low and closed down -1.39%.  Japan's Nikkei Stock 225 closed down -3.38%.

Interest Rates

June 10-year T-notes (ZNM6) on Thursday closed down by -4.5 ticks.  The 10-year T-note yield rose +1.2 bp to 4.277%.  June T-notes fell to a contract low on Thursday, and the 10-year T-note yield jumped to a 6.75-month high of 4.322%.  T-notes are under pressure on negative carryover from Wednesday, when Fed Chair Powell said there will be no Fed rate cuts unless there is progress on inflation. T-notes extended their losses on Thursday after weekly jobless claims unexpectedly fell to a 9-week low and the March Philadelphia Fed business outlook survey unexpectedly rose to a 6-month high. 

However, T-notes recovered from their worst level after Jan new home sales fell more than expected to a 3.25-year low.  Also, the sharp reversal in crude oil price on Thursday afternoon, from higher on the day to sharply lower, sparked short covering in T-notes.

European government bond yields moved higher on Thursday.  The 10-year German bund yield jumped to a 2.25-year high of 3.011% and finished up +2.2 bp to 2.962%.  The 10-year UK gilt yield climbed to a 14-month high of 4.914% and finished up +10.5 bp to 4.843%.

The ECB, as expected, kept the deposit facility rate unchanged at 2.00% and said the Iran war poses upside inflation risks and downside risks to economic growth.

The ECB cut its 2026 Eurozone GDP forecast to 0.9% from 1.2% in December and raised its 2026 inflation forecast ex-food and energy to 2.3% from 2.2%.

The BOE, as expected, voted 9-0 to keep the official bank rate unchanged at 3.75% and said all members "stand ready to act" to contain any inflation surge triggered by the war in the Middle East.

BOE Governor Andrew Bailey warned that policy must "respond to the risk of a more persistent effect on UK CPI inflation and whatever happens, our job is to make sure inflation gets back to its 2% target."

Swaps are discounting a 63% chance of a +25 bp ECB rate hike at its next policy meeting on April 30.

US Stock Movers

The Magnificent Seven technology stocks were weaker on Thursday, weighing on the overall market.  Tesla (TSLA) closed down more than -3%, and Nvidia (NVDA) and Meta Platforms (META) closed down more than -1%.  Also, Microsoft (MSFT) closed down -0.71%, Amazon.com (AMZN) closed down -0.52%, Apple (AAPL) closed down -0.39%, and Alphabet (GOOGL) closed down -0.18%. 

Mining stocks added to this week’s sell-off on Thursday, as gold and silver prices fell to 6-week lows and copper prices dropped to a 3-month low.  Anglogold Ashanti Ltd (AU) closed down more than -7%, and Newmont Mining (NEM) closed down more than -7% to lead losers in the S&P 500.  Also, Barrick Mining (B) closed down more than -5%, and Coeur Mining (CDE), Hecla Mining (HL), and Southern Copper (SCCO) closed down more than -4%. In addition, Freeport-McMoRan (FCX) closed down more than -3%.

AI infrastructure and chip stocks moved higher on Thursday, limiting losses in the broader market.  Seagate Technology Holdings Plc (STX) closed up more than +6% to lead gainers in the Nasdaq 100, and Lam Research (LRCX) closed up more than +4%.  Also, Western Digital (WDC) closed up more than +3%, and Advanced Micro Devices (AMD), Intel (INTC), Sandisk (SNDK), Applied Materials (AMAT), and Marvell Technology (MRVL) closed up more than +2%.

US natural gas producers moved higher on Thursday on the outlook for additional US LNG exports after “extensive damage” was reported from Iranian missile and drone attacks atQatar’s Ras Laffan gas plant, the world’s largest natural gas export plant.  Cheniere Energy (LNG) closed up more than +6%, Antero Resources (AR) closed up more than +4%, Expand Energy (EXE) closed up more than +2%, and EOG Resources (EOG) closed up nearly +1%.

Kinsale Capital Group (KNSL) closed down -6% after Jeffries downgraded the stock to underperform from hold with a price target of $312. 

Micron Technology (MU) closed down more than -3% to lead losers in the Nasdaq 100 after forecasting full-year capital spending of $25 billion, above the consensus of $22.4 billion. 

CSX Corp (CSX) closed down more than -2% after Evercore ISI downgraded the stock to in line from outperform.

Five Below (FIVE) closed up more than +10% after reporting Q4 net sales of $1,73 billion, better than the consensus of $1.71 billion, and forecasting 2027 net sales of $5.20 billion to $5.30 billion, the midpoint above the consensus of $5.21 billion.

Accenture (ACN) closed up more than +4% after reporting Q2 revenue of $18.04 billion, better than the consensus of $17.86 billion. 

Rivian Automotive (RIVN) closed up more than +4% after Uber Technologies said it will invest up to $1.25 billion in Rivian to help launch a robotaxi fleet.

Align Technology (ALGN) closed up more than +2% after Bloomberg reported that Elliot Investment Management has built a significant stake in the company. 

Darden Restaurants (DRI) closed up more than +1% after forecasting Q4 adjusted EPS of $3.59 to $3.69, stronger than the consensus of $3.57. 

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