Dow on verge of correction as Iran war and inflation cloud outlook for markets

By John Towfighi, CNN

New York (CNN) — US stocks slid and the Dow hovered on the verge of a correction Friday as uncertainty about the duration of the war with Iran and nerves about energy inflation continued to weigh on markets.

The Dow, S&P 500 and Nasdaq each hit their lowest level of the year. The Dow was down 750 points, or 1.6%. The S&P 500 fell 1.5% and the Nasdaq declined by 1.9%.

The Nasdaq extended losses after closing in correction territory Thursday, down more than 10% from its record high in October. The Nasdaq is made up of tech stocks that are more sensitive to the outlook for interest rates and economic growth.

The Dow at one point Friday was down more than 9.9% from its record high in February, putting the blue-chip index on the cusp of a correction.

The key factor is rising oil prices: Brent crude, the global benchmark, rose 4.3%, to $112.65 per barrel. US crude oil rose 5.6%, to $99.77 per barrel.

Treasury yields, which rise when bonds fall, moved higher before paring gains. The 10-year yield hit 4.48%, its highest level since July, before trading around 4.44%. The 30-year yield briefly hit 5%, a key threshold, before trading at 4.98%.

Yields have climbed during the war on Iran as investors adjust their expectations for inflation and interest rates remaining higher for longer. The 10-year yield traded at 3.96% at the end of February, before the start of the conflict in the Middle East.

The US dollar index gained 0.3%, benefitting from safe haven demand and expectations for the Federal Reserve to hold interest rates steady due to inflation concerns.

“The stock market is still highly correlated to oil prices, so as oil prices move higher, stocks are moving lower,” Glen Smith, chief investment officer at GDS Wealth Management, said in a note.

Higher bond yields can also pull investors away from stocks.

“It’s not surprising for the Nasdaq to be entering correction territory sooner than the broader S&P 500, as the tech sector was facing pressure even before the Iran war began on worries about high valuations in the space and questions about AI’s return on investment,” Smith said.

CNN’s Fear and Greed index hovered in “extreme fear” and hit its lowest level since November. Meanwhile, bitcoin had a rough day: The cryptocurrency dropped 4.6%, trading around $65,862.

This is a developing story and will be updated.

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