North American stocks fall, oil prices rise as Trump’s delay fails to ease fears
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US stocks are falling as Wall Street heads towards the end of a fifth consecutive losing week, which would be its longest in nearly four years.
The S&P 500 fell 0.9 percent in early trading on Friday, deepening its losses after its worst decline since the start of the war with Iran a day earlier. As of 10:05 a.m. ET the Dow Jones Industrial Average was down 423 points, or 0.9 percent, and the Nasdaq Composite was 1.3 percent lower.
It came a day after Wall Street’s worst decline since the start of the new war in the Middle East, when the Nasdaq fell 10 percent from its all-time high earlier this year, putting it officially in correction territory.
The losses are a break from Wall Street’s pattern this week, when the U.S. stock market flipped from gains to losses each day as expectations about a possible end to the war rose and fell.
Moments after the US stock market ended disappointing trading Thursday, President Donald Trump offered another possible nod to hope. He extended to April 6 a self-imposed deadline to “destroy” Iran’s power plants if it does not allow oil tankers to resume their exit from the Persian Gulf into the open ocean through the Strait of Hormuz.
Oil prices briefly fell after Trump’s announcement, indicating optimism in financial markets that some normalcy could return to the Strait of Hormuz. But as the sun moved westward from Asia to Europe and back to Wall Street, oil prices began rising again.
Despite Trump’s second announcement of a delay this week, fighting continued in the Middle East. Iran showed no signs of backing down, while Israel threatened to “escalate and escalate” its attacks on Iran.
Oil has risen above US$100 a barrel due to Iran’s blockade of the Strait of Hormuz and attacks on tankers and facilities. Cornell economic historian Nicholas Mulder says it is ‘reasonable to assume’ that as long as the war continues, prices will continue to climb by a few dollars per day, and potentially reach $120 US by the end of the month.
“The diplomatic inconsistency between the U.S. and Iran disappointed investors this week,” said Doug Beath, global equity strategist at Wells Fargo Investment Institute. “By the end of the week, the appetite for risk could no longer withstand the fog of war.”
“Any statements from Trump about the deal are white noise to the market,” Jim Bianco, president and macro strategist at Bianco Research, wrote in a social media post. “If the Iranians say talks are going well, it will impact the markets.”
The price of a barrel of Brent crude, the international standard, rose 2.2 percent to US$104.13, up from about US$70 before the war began. Benchmark US crude rose three per cent to US$97.28 a barrel.
The fear in financial markets is that the war will disrupt the production and transportation of oil and natural gas in the Persian Gulf for a long time. It could keep so much oil and gas out of world markets that it could send a devastating wave of inflation through the global economy. Not only would this raise prices for drivers who buy gasoline, but it could also lead businesses that use trucks, ships or planes to transport their products to raise their prices.
If the war continues until the end of June, Macquarie strategists say the oil price could reach US$200 per barrel, which would be a record.
While lower rates would help jolt the job market and investment prices upward, they would also risk making inflation worse.
Long-term US Treasury yields rose further in the bond market after Friday’s rise in oil prices. The yield for the 10-year Treasury rose to 4.44 percent from 4.42 percent late Thursday, down from just 3.97 percent before the war began.
That increase has already sent rates skyrocketing on mortgages and other loans taken out by American households and businesses, slowing the economy.
On Wall Street, most stocks fell, including four out of every five in the S&P 500.
One of the few stocks to rise was Netflix, which added 0.3 percent a day after announcing price increases for its services.
In stock markets overseas, indices fell in Europe after a mixed finish in Asia.
