Stocks Plunge on US Plans to Escalate Iran War

The S&P 500 Index ($SPX) (SPY) on Friday closed down -1.51%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.96%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.88%.  March E-mini S&P futures (ESM26) fell -1.39%, and March E-mini Nasdaq futures (NQM26) fell -1.83%.

Stocks plunged on Friday, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 falling to 6.25-month lows.  Stocks fell sharply on Friday amid concerns about the spillover effects of elevated energy costs from the war with Iran to inflation and economic growth.

Stock losses deepened on Friday after CBS reported that Pentagon officials have made detailed preparations for deploying US ground troops into Iran.  Also, Axios reported that the US is considering taking over Iran’s Kharg Island, a key oil-export site, to put pressure on Iran to reopen the Strait of Hormuz.  The Wall Street Journal reported Friday that the Pentagon is deploying three warships and thousands of Marines to the Middle East.

Also, inflation fears on Friday pushed global bond yields higher and weighed on stocks.  The 10-year T-note yield rose to a 7.5-month high Friday of 4.39%, the 10-year UK Gilt yield jumped to a 17.5-year high of 5.02%, and the 10-year German Bund yield climbed to a 14.75-year high of 3.05%.   

The Iran war entered its twenty-first day on Friday with no end in sight as Iran presses ahead with attacks on neighboring states.  Kuwait said on Friday that it shut several units at its Al Ahmadi refinery after multiple strikes, and Bahrain reported a fire at a warehouse.  Also, Saudi Arabia and the United Arab Emirates said they intercepted Iranian missiles and drones on Friday. 

Crude oil prices (CLJ26) 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 12% chance for a +25 bp FOMC rate hike at the April 28-29 policy meeting.

Overseas stock markets settled lower on Friday.  The Euro Stoxx 50 fell to a 4-month low and closed down -2.00%.  China's Shanghai Composite fell to a 2.5-month low and closed down -1.24%.  Japan's Nikkei Stock 225 was closed for the Vernal Equinox Day holiday.

Interest Rates

June 10-year T-notes (ZNM6) on Friday settled down by -23 ticks.  The 10-year T-note yield rose by +13.7 bp to 4.386%.  June T-notes tumbled to a contract low on Friday, and the 10-year T-note yield rose to a 7.5-month high of 4.392%.  T-note yields have risen sharply over the past two weeks on concern that surging energy prices from the Iran war will boost inflation and even force the Fed to tighten monetary policy.  T-notes were also pressured on negative carryover from Friday's surge in European government bond yields, as the 10-year UK Gilt yield rose to a 17.5-year high and the 10-year German Bund yield rose to a 14.75-year high. 

European government bond yields moved higher on Friday.  The 10-year German bund yield jumped to a 14.75-year high of 3.049% and finished up +8.2 bp to 3.043%.  The 10-year UK gilt yield rose to a 17.5-year high of 5.022% and finished up +15.0 bp to 4.994%.

German Feb PPI fell -3.3% y/y, weaker than expectations of -2.7% y/y and the biggest decline in 1.75 years.

ECB Governing Council member and Bundesbank President Joachim Nagel said the ECB may need to consider raising interest rates as soon as next month if price pressures build further due to the Iran war.

Swaps are discounting a 79% chance of a +25 bp ECB rate hike at its next policy meeting on April 30.

US Stock Movers

The Magnificent Seven technology stocks moved lower on Friday, a negative factor for the overall market. Nvidia (NVDA) and Tesla (TSLA) closed down more than -3%, and Alphabet (GOOGL) and Meta Platforms (META) closed down more than -2%.  Also, Amazon.com (AMZN) and Microsoft (MSFT) closed down more than -1%, and Apple (AAPL) closed down -0.39%. 

Chip stocks and AI-infrastructure companies sold off on Friday and weighed on the broader market.  Sandisk (SNDK) closed down more than -8%, and Western Digital (WDC) closed down more than -7%.  Also, Seagate Technology Holdings Plc (STX) and Intel (INTC) closed down more than -5%, and Micron Technology (MU) closed down more than -4%. In addition, ASML Holding NV (ASML) closed down more than -3%, and Broadcom (AVGO) and Lam Research (LRCX) closed down more than -2%. 

Airline stocks slumped on Friday on concerns that soaring fuel costs will eat into corporate profits.  United Airlines Holdings (UAL) closed down more than -4%, and American Airlines Group (AAL) and Southwest Airlines (LUV) closed down more than -3%.  Also, Delta Air Lines (DAL) and Alaska Air Group (ALK) closed down more than -2%.

Home builders and building suppliers retreated on Friday, as the 10-year T-note yield jumped to a 7.5-month high, a bearish factor for housing demand.  DR Horton (DHI), Lennar (LEN), Toll Brothers (TOL), and Builders Firstsource (BLDR) closed down more than -3%.  Also, Pulte Group (PHM), Home Depot (HD), and KB Home (KBH) closed down more than -2%.

Super Micro Computer (SMCI) closed down more than -33% to lead losers in the S&P 500 after the company reported that the US Attorney’s Office indicted three executives for allegedly conspiring to commit export-control violations. 

Mosaic (MOS) closed down more than -9% after Freedom Capital Markets downgraded the stock to sell from hold. 

Planet Labs (PL) closed up more than +25% after forecasting 2027 revenue of $415 million to $440 million, well above the consensus of $379.6 million.

SM Energy (SM) closed up more than +8% after JPMorgan Chase upgraded the stock to overweight from restricted with a price target of $40.

ARM Holdings Plc (ARM) closed up more than +1% to lead gainers in the Nasdaq 100 after HSBC double-upgraded the stock to buy from reduce with a price target of $205. 

Verizon Communications (VZ) closed up more than +1% to lead gainers in the Dow Jones Industrials after Citigroup raised its price target on the stock to $55 from $50.

Chipotle Mexican Grill (CMG) closed up more than +1% after Mizuho Securities upgraded the stock to outperform from neutral with a price target of $40.

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