Market Turbulence Amid Iran Conflict Challenges Trump’s Financial Influence
President Donald Trump has traditionally had a significant impact on financial markets, but the ongoing conflict with Iran appears to be testing the limits of his influence.
On Friday, the S&P 500 dropped by 1.7%, marking its fifth consecutive week of declines—the longest losing streak since 2022. This downturn signals waning confidence in the prospects for a swift resolution to the conflict.
Since the U.S. military action against Iran on February 28, the S&P 500 has experienced a decline of approximately 7%. The Dow Jones Industrial Average also fell by 1.7% on Friday, losing nearly 4,000 points since hostilities began and entering correction territory, down over 10% from its recent high.
The tech-heavy Nasdaq saw a deeper plunge, falling 2% and closing 13% lower than its record high in October. Alongside these stock market declines, crude oil prices surged, with U.S. crude exceeding $100 per barrel and Brent crude reaching around $114. Additionally, the yield on the 10-year U.S. Treasury rose to 4.4%, its highest level since last summer, leading some energy stocks, including Exxon, to trade near record highs.
Even President Trump’s announcement of a 10-day moratorium on attacks against Iranian energy facilities had little effect on the stock market, indicating a growing disconnect between presidential announcements and market reactions.
Earlier in the week, prices for electricity surged following Trump’s temporary suspension of strikes on Iranian power facilities, which was attributed to “productive” conversations with Iranian representatives. However, market analysts suggest that investors are looking for concrete solutions rather than reassurances. Adam Turnquist, chief strategist at LPL Financial, noted that while verbal commitments are important, the market needs actionable plans to restore confidence.
Long-Term Market Impact of Military Actions
The repercussions of the current conflict suggest a significant transition in market dynamics, diverging from Trump’s prior ability to move markets effectively. Recent military actions have created conditions that experts believe make a return to pre-war market levels unlikely in the short or medium term.
Disruptions to oil and gas supply chains are expected to escalate transportation costs, perpetuating higher oil prices. Even should the strategically vital Strait of Hormuz reopen, the costs of transit may continue to climb due to increased demand for safe passage.
The broader economic fallout is already visible, with rising oil prices likely influencing the Federal Reserve’s interest rate policies. As inflation pressures persist, the likelihood of a rate hike by year-end surpasses that of any cuts. Financial analysts believe that even if the conflict were to cease suddenly, market recovery would be hindered by ongoing instability in oil pricing. Steve Sosnick, chief strategist at Interactive Brokers, emphasized that prices would not return to pre-conflict norms any time soon, and investor expectations surrounding interest rate cuts will also need adjustment.
Future Outlook for Investors
Despite the current market turbulence, some analysts argue that earnings growth expectations remain optimistic for the time being. However, there’s a risk that extended conflict could further dampen consumer spending and business investments. The U.S. economy, while having transitioned to a more service-oriented model, is still sensitive to oil price fluctuations, albeit to a lesser degree than in the past.
Historically, even before the onset of this conflict, stock valuations were viewed as overinflated. Traders grappling with these inflated valuations may find it challenging to reclaim previous highs. Matt Maley, chief market strategist at Miller Tabak Financial Group, warned that the risk-reward dynamic is heavily skewed towards potential declines rather than recoveries.
Sosnick concluded that ongoing hostilities could erode Trump’s ability to influence markets, highlighting the complex array of factors affecting investor sentiment. The president’s approach to interpreting market dynamics may need recalibrating in light of these challenges, as quick fixes are becoming increasingly elusive.
