Stocks Settle Lower as Iran War Boosts Crude Oil and Bond Yields

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.37%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.18%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.77%.  June E-mini S&P futures (ESM26) fell -0.35%, and June E-mini Nasdaq futures (NQM26) fell -0.77%.

Stocks settled lower on Tuesday as the war in Iran entered its 25th day.  WTI crude oil jumped more than +4% Tuesday, and the 10-year T-note yield rose +4 bp to 4.38%.  The strength in energy producers on Tuesday limited the downside in stocks.  Renewed tensions risks are keeping oil prices elevated as Iran launched missile and drone strikes on Tuesday on several cities in Israel, as well as US bases in the Middle East.  Saudi Arabia said it intercepted a drone in its eastern region, and Kuwait said some power lines were knocked out of service after an Iranian attack. 

Stocks came under pressure on Tuesday after the Wall Street Journal reported that Saudi Arabia and the United Arab Emirates (UAE) have taken steps toward joining the Iran war, potentially signaling an escalation of the fighting.  Saudi Arabia agreed to give the US military access to King Fahd Air Base, and the UAE closed an Iranian-owned hospital and club.  Iran’s Middle Eastern neighbors are growing frustrated with Iran, which has responded to US and Israeli attacks by hitting targets in several nearby nations.  Stocks fell to their lows on Tuesday after the Wall Street Journal reported that the US is considering deploying a brigade combat team of about 3,000 from the Army's 82nd Airborne Division to the Middle East.

However, stocks bounced from their lows on Tuesday afternoon after Axios reported that the US and a group of regional mediators are discussing the possibility of holding high-level peace talks with Iran as soon as Thursday, pending a response from Iran.

Tuesday’s US economic news was mostly better than expected and supportive of stocks.  Q4 nonfarm productivity was left unrevised at +1.8%, but Q4 unit labor costs were revised upward to +4.4% from +2.8%, stronger than expectations of +3.6%. Also, the Mar S&P manufacturing PMI unexpectedly rose +0.8 to 52.4, stronger than expectations of a decline to 51.5.  In addition, the Mar Richmond Fed manufacturing survey of current conditions rose +10 to a 13-month high of 0, better than expectations of -8.

The markets are awaiting the next headlines in the Iran war after stocks rallied sharply on Monday, after President Trump said strikes against Iranian energy infrastructure and power plants would be postponed for five days following the start of talks with Iran to end the war. Mr. Trump said the US held productive talks on a comprehensive resolution of hostilities in the Middle East and that the discussion would continue throughout the week. 

Crude oil prices (CLK26) remain high despite attempts to boost global supplies.  The IEA on March 11 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.  The International Energy Agency said Monday that more than 40 energy sites across nine countries in the Middle East have been "severely or very severely" damaged, potentially prolonging disruptions to global supply chains once the war in Iran ends.  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 an 8% chance for a +25 bp FOMC rate hike at the April 28-29 policy meeting.

Overseas stock markets settled higher on Tuesday.  The Euro Stoxx 50 closed up +0.13%.  China's Shanghai Composite closed up +1.78%.  Japan's Nikkei Stock 225 closed up +1.43%.

Interest Rates

June 10-year T-notes (ZNM6) today closed down by -16 ticks.  The 10-year T-note yield rose +3.6 bp to 4.378%.  June T-notes were under pressure on Tuesday after WTI crude oil jumped more than +4%, which has boosted inflation expectations.  Also, Tuesday’s economic news that showed the Mar S&P manufacturing PMI unexpectedly rose undercut T-ntes.  Weak demand for the Treasury’s $69 billion auction of 2-year T-notes also pressured T-note prices as the auction had a bid-to-cover ratio of 2.44, well below the 10-auction average of 2.62 and the lowest in 1.75 years. 

European government bond yields moved higher on Tuesday.  The 10-year German bund yield rose +2.2 bp to 3.027%.  The 10-year UK gilt yield rose +3.8 bp to 4.958%.

The Eurozone Mar S&P manufacturing PMI unexpectedly rose +0.6 to 51.4, stronger than expectations of a decline to 49.6 and the strongest pace of expansion in 3.75 years.  The Mar S&P composite PMI fell -1.4 to a 10-month low of 50.5, weaker than expectations of 51.0.

Eurozone Feb new car registrations rose +1.4% y/y to 865,000.

ECB Governing Council member Boris Vujcic, who will become ECB Vice President in June, said the ECB must be "very agile and vigilant" to keep prices in check as the war in Iran brings stagflation risks closer. 

The UK Mar S&P manufacturing PMI fell -0.3 to 51.4, stronger than expectations of 50.0.

Swaps are discounting a 86% chance of a +25 bp ECB rate hike at its next policy meeting on April 30.

US Stock Movers

Software companies retreated on Tuesday after The Information reported that Amazon Web Services is developing an AI agent to automate functions in sales, business development, and other areas.  Atlassian (TEAM) closed down more than -8%, and Salesforce (CRM) closed down by more than -6% to lead losers in the Dow Jones industrials.  Also, Intuit (INTU), Datadog (DDOG), ServiceNow (NOW), and Workday (WDAY) closed down more than -5%, and Oracle (ORCL) closed down more than -4%.  In addition, Adobe Systems (ADBE), Autodesk (ADSK), and Palantir Technologies (PLTR) closed down more than -3%.

Cybersecurity stocks tumbled on Tuesday.  Zscaler (ZS) closed down more than -7%, and CrowdStrike Holdings (CRWD) closed down more than -4%.  Also, Palo Alto Networks (PANW), Fortinet (FTNT), and Cloudflare (NET) closed down more than -3%.

Cryptocurrency-exposed stocks moved lower on Tuesday after Bitcoin (^BTCUSD) fell more than -2%.  Coinbase Global (COIN) closed down more than -9%, and MARA Holdings (MARA) closed down more than -7%.  Also, Galaxy Digital Holdings (GLXY) and Strategy (MSTR) closed down more than -1%, and Riot Platforms (RIOT) closed down -0.28%. 

Energy producers and energy service providers rallied on Tuesday as WTI crude oil rose more than +4%. Marathon Petroleum (MPC), APA Corp (APA), and Phillips 66 (PSX) closed up more than +4%, and Devon Energy (DVN) closed up more than +3%.  Also, Diamondback Energy (FANG), Exxon Mobil (XOM), and SLB Ltd (SLB) closed up more than +2%. 

Estee Lauder (EL) closed down more than -9%, adding to Monday’s -7% plunge, on news that it is nearing a deal to acquire Puig Brands.

Fair Isaac Corp (FICO) closed down more than -6%, adding to Monday’s -5% decline after Politico reported Senator Hawley asking the FTC to probe the “anticompetitive” practices of the company.

Dollar General (DG) closed down more than -5% after the company announced that Jerry Fleeman would succeed Todd Vasos as CEO, effective January 1, 2027. 

Solventum Corp. (SOLV) closed down more than -2% after Rothschild & Co Redburn initiated coverage on the stock with a sell recommendation and a price target of $60. 

Xencor Inc. (XNCR) closed down more than -1% after JPMorgan Chase downgraded the stock to neutral from overweight.

Applies Optoelectronics Inc. (AAOI) closed up more than +19% after receiving a new $53 million order for its 800G single-mode data center transceivers. 

Netgear (NTGR) closed up more than +11% after the US Federal Communications Commission ordered a ban on the import of new models of foreign-produced consumer wireless routers. 

Smithfield Foods (SFD) closed up more than +4% after reporting Q4 revenue of $4.23 billion, stronger than the consensus of $4.14 billion. 

Jeffries Financial Group (JEF) closed up more than +2% after the Financial Times reported that Sumitomo Mitsui Financial Group is working on plans for a potential takeover of the company.

Earnings Reports(3/25/2026)

Chewy Inc (CHWY), Cintas Corp (CTAS), Jefferies Financial Group Inc (JEF), Karman Holdings Inc (KRMN), Paychex Inc (PAYX), PDD Holdings Inc (PDD).