The New York stock market plummeted due to escalating tensions between the U.S. and Iran... oil prices rose

The New York stock market in the United States on the 21st (local time) fell across the board, affected by uncertainty in the Middle East situation. At the beginning of trading, an assessment that major companies’ first-quarter performance was better than expected supported stock prices, but as observations spread that the U.S.-Iran second round of ceasefire talks might not proceed as planned, the market’s attention quickly shifted to geopolitical risks.

That day, the Dow Jones Industrial Average fell 293.18 points (0.59%) from the previous trading day to close at 49,149.38 points; the S&P 500 index fell 45.13 points (0.63%) to close at 7,064.01 points; and the Nasdaq index fell 144.43 points (0.59%) to close at 24,259.96 points. The Chicago Board Options Exchange Volatility Index, which reflects investor unease, rose 0.63 points (3.34%) to 19.50, nearing the 20 level that is usually seen as a market warning line. This indicates that, compared with positive earnings, the situation in which sudden variables such as war or supply shocks continue to steer the market direction remains in effect.

News related to U.S.-Iran negotiations changed the market atmosphere. On the day before the ceasefire ended, a series of reports said that the two countries’ negotiation delegations had not even departed for the meeting venue in Islamabad, Pakistan, and, together with reports that the U.S. Department of Defense seized ships associated with Iran, tensions escalated. In an interview with CNBC, U.S. President Donald Trump said he had no intention of extending the ceasefire, and mentioned that if an agreement could not be reached, bombing Iran might happen as well, which severely hit investor sentiment. Iran also countered the U.S. maritime blockade by characterizing it as an act of war. However, after the close, President Trump indicated a policy of postponing attacks and extending the ceasefire, citing Pakistan’s request and internal Iranian circumstances. It is reported that Iran has conveyed to the United States via Pakistan its position of not participating in the second round of talks.

As tensions in the Middle East escalated, international oil prices surged rapidly. The Brent crude oil futures for June delivery closed up $3.00 (3.14%) from the previous trading day at $98.48 per barrel; the West Texas Intermediate (WTI) crude oil futures for June delivery also rose $2.25 (2.57%) to $89.67 per barrel. As the Middle East is a core region for the world’s crude oil supply, worries that increased likelihood of military conflict would disrupt oil transportation and reduce supply would be immediately reflected in prices. On the other hand, international spot gold prices fell 3.0%, closing at $4,677.24 per ounce. Gold is usually classified as a safe asset, but that day’s decline was interpreted as the combined effect of rate and dollar flows and profit-taking operations.

The market also paid attention that day to a Senate hearing involving Kevin Woschi, the Fed chair candidate. Woschi indicated that he would uphold the Federal Reserve’s independence, unlike the president’s preference for rate cuts. The market interpreted this as a relatively hawkish signal with a focus on monetary tightening. As a result, the yield on the 10-year U.S. Treasury rose by 4 basis points (1bp=0.01%) to 4.29%; the 2-year yield rose by 6 basis points to 3.78%. However, some assessments believe that the overall underlying strength of the stock market has not been completely broken. Based on improvements in artificial intelligence and technology-sector industry performance, JPMorgan raised its year-end target for the S&P 500 index from 7,200 points to 7,600 points. In the end, the current market is a standoff between internal drivers such as corporate earnings and external shocks such as the Middle East situation and the interest-rate outlook. This trend suggests that, in the short term, stock market volatility may continue depending on whether the U.S.-Iran negotiations restart, the policy direction of the Federal Reserve, and the trend in energy prices.