US stock markets faced significant pressure on Friday, extending a multi-week selloff as escalating geopolitical conflict in the Middle East and volatile oil prices forced investors to reassess the economic outlook and the Federal Reserve's policy path. The Dow Jones Industrial Average opened lower, down 104 points (0.23%), with the S&P 500 falling 0.45% and the Nasdaq 100 declining 0.64%. This marked a continuation of losses, putting major indexes on track for their fourth consecutive weekly decline and pushing them below their critical 200-day moving averages.
The core driver of market anxiety is the ongoing conflict involving Iran, now approaching its fourth week. Recent developments, including reports of an attack on an oil refinery in Kuwait and discussions of potential US actions targeting Iran's Kharg Island, have heightened fears of a disruption to the Strait of Hormuz—a vital chokepoint for global oil shipments. This geopolitical uncertainty directly fueled a resurgence in oil prices, with Brent crude rising as high as $111.22 a barrel and West Texas Intermediate climbing to $96.40.
This energy market volatility is having a profound impact on monetary policy expectations. Federal Reserve Governor Christopher Waller warned that persistently high oil prices could feed into core inflation if sustained. Consequently, market expectations for the Fed's first interest rate cut have been pushed further out. Traders are now betting on a cut in 2027, a significant delay from expectations of December 2026 earlier in the month, complicating the central bank's efforts to manage inflation without stifling growth.
The trading session was further amplified by the quarterly "triple witching" event—the simultaneous expiration of stock options, index options, and futures—which typically increases trading volumes and volatility. The CBOE Volatility Index (VIX) ticked higher, reflecting the pervasive investor unease. Sector performance was sharply divergent, with energy stocks extending a record winning streak on the back of higher crude prices, while technology shares showed mixed movement amid company-specific news.
Global markets echoed the cautious sentiment. In Asia, trading was uneven with Hong Kong’s Hang Seng falling 1% and Shanghai slipping 1.2%. European markets, including Germany's DAX and France's CAC 40, managed modest gains early Friday but investors remained wary as central banks in the region flagged the Iran conflict as a fresh source of uncertainty. As Wells Fargo strategist Scott Wren summarized, "All the near-term action depends on the Strait opening," underscoring how geopolitical stability is the key to near-term market direction.
