Stocks and Oil Prices Swing as Investors Await More Clarity on Duration of Iran War

Key Takeaways

• Oil prices fell sharply amid expectations that the oil crunch resulting from the Iran war will be tempered by reserve releases, even as US officials gave contradictory statements about the length of the war.
• Oil prices are still up roughly 24% from before the war began.
• US stocks seesawed along with the drop in oil prices, while their European and Asian peers, having sold off more steeply amid the war, rallied.

Amid a steep drop in oil prices, US stocks swung on Tuesday to end the day little changed, with hopes for a short war in Iran despite conflicting signals from US President Donald Trump’s administration.

The Morningstar US Market Index rose rose 0.57% on Tuesday, reversing an early dip. The S&P 500, which had started the morning down 0.20%, was up 0.52%, and the Nasdaq 100, which had been flat earlier, rose 0.70%. A drop in oil prices was the driver, as West Texas Intermediate crude oil prices fell 12% to $83.45 a barrel.

The drop in oil prices began late Monday, after President Trump said the war would end “very soon.” However, he and other administration officials offered differing assessments of the potential timeline. “TACO had to happen, and I guess Trump just revealed his pain threshold,” says Neil Wilson, investor strategist at Saxo UK. He refers to the trending Wall Street term, which stands for “Trump always chickens out.”

The oil market continues to be the center of attention. After a steep rise in oil prices since the start of the war, prices fell sharply on news that Group of Seven energy officials are considering releasing oil reserves into the market to help offset the disruption caused by the closure of the Strait of Hormuz due to the war. Roughly one-fifth of global energy shipping goes through the Strait.

“Monday’s events show that the US administration is more sensitive to energy than it seemed,” ING analysts wrote in a note.

The Morningstar Europe Index rose 1.8% on Tuesday, on track for its biggest jump in over 10 months. The region’s banking stocks were among the top gainers as markets bet on an improved economic outlook. Asian stocks also recovered, with the Morningstar Asia Index up 3.1% at the close in dollar terms.

While oil prices fell sharply on Tuesday, WTI crude remains well above its level from before the United States and Israel began attacking Iran. Trading north of $83 per barrel, oil is up 24% since where it closed on Feb. 27.

Bond yields also ticked lower, and traders pulled back their bets on interest rates amid easing concerns around inflation and a wider economic fallout from the war. The US 10-year Treasury yield edged up 0.03 percentage points to 4.15%. The US Dollar Index, which tracks the dollar against a basket of currencies, edged down to 98.93. Gold ticked up roughly 2% to $5,202.70.

“It completes a pretty madcap couple of days for the markets,” Saxo’s Wilson says. “But we should note that oil and gas prices, while sharply lower over the last 24 hours, remain higher than before the war.”