Israel-Iran Conflict Weighs Heavily on Markets
The stock market braces for continued uncertainty as tensions between Israel and Iran linger, overshadowing investor sentiment heading into the coming week. Although the initial market response to recent attacks was muted, volatility surged Friday afternoon following missile launches by Iran, as confirmed by reports from both Tehran and Israeli Defense Forces.
The Dow Jones Industrial Average plunged over 800 points at its lowest point during the session, ultimately closing down more than 750 points. This sharp downturn triggered a risk-off mood across markets, especially disappointing since the S&P 500 had been flirting with record highs just hours earlier.
Market Reactions and Sector Shifts
- Oil prices surged amid fears of regional instability disrupting supplies.
- Defense stocks rallied strongly as geopolitical concerns intensified.
- Volatility spiked with the CBOE Volatility Index briefly touching above 20, signaling rising investor anxiety.
- Semiconductor shares, including heavy hitters like Nvidia, retreated following their earlier rally this week.
- Gold, after a brief pause in its historic ascent, regained momentum as a safe haven.
Investors are pulling back ahead of the weekend, cautious about potential retaliatory strikes and further escalation. Art Hogan, a chief market strategist, underscored that next week’s market trajectory will hinge on developments within the conflict and any possible escalation or diplomatic moves.
Fed Meeting Looms: What to Expect
Next week’s Federal Reserve meeting adds another layer of complexity. The central bank is widely expected to hold interest rates steady, but all eyes will be on Fed Chair Jerome Powell’s statements and the updated economic projections.
Markets are pricing in two quarter-point rate cuts starting in September, according to current futures data. Investors anticipate a steady, data-dependent tone from Powell, particularly in light of recent softer inflation figures that may allow some policy breathing room.
However, debate persists about the Fed's future path. Some analysts suggest a subtle dovish undertone may emerge, reflecting early signs of labor market softening despite its overall resilience.
"The market is eager to hear how the Fed weighs recent inflation cooling against some labor market weakness," noted a portfolio manager. "Whether future cuts come from caution or confidence remains to be seen."
Opinions diverge among experts: some foresee multiple rate cuts before the year’s end, while others, wary of fiscal policies that could fuel inflation, expect only one reduction or a more cautious approach.
Upcoming Economic Calendar and Market Considerations
The coming week will also be shortened by the Juneteenth holiday, with markets closed Thursday. Key economic releases include:
- Monday: Empire State Index, 20-year bond auction, Lennar earnings
- Tuesday: Export/Import Price Indexes, Retail Sales, Capacity Utilization, Industrial Production, and more
- Wednesday: Building Permits, Housing Starts, Jobless Claims, Federal Open Market Committee decision at 2 p.m.
- Friday: Philadelphia Fed Index, Leading Economic Indicators, and earnings from Darden Restaurants, CarMax, and Kroger
Investors will be parsing both geopolitical developments and economic signals closely to navigate a week marked by uncertainty and pivotal policy clues.
