As tensions continue in the Middle East, the hopes that sent Wall Street stocks soaring on Tuesday have faded, oil prices are back on the rise, and US stocks are beginning to lose some of their gains.
According to the Associated Press, the price of a barrel of Brent crude rose by 2.9% to reach $102.84, a day after it fell by more than 10%. In contrast, the Standard & Poor’s 500 index fell by 0.4%, giving up more than a third of the gains it achieved in the previous session.
The Dow Jones Industrial Average also fell by 127 points, or 0.3%, by 10:30 AM EST, while the Nasdaq Composite Index lost 0.8%.
Wall Street declines amid fears of rate hikes and war with Iran:
The optimism came at the beginning of the week after US President Donald Trump raised hopes that the war could end soon, when he said that the United States and Iran held fruitful talks “about reaching a complete and comprehensive solution to our hostilities in the Middle East.” This announcement led to an immediate shift in the stock’s trajectory from losses to gains.
Oil industry turmoil:
This helped allay fears that the war would lead to long-term disruption in the oil and natural gas industry, which could be enough to trigger a wave of inflation that would affect consumers around the world.
But Iran denied holding any such talks, while the attacks continued.
The price of a barrel of standard US crude oil rose by 4.1% to reach $91.73, offsetting part of its sharp losses of 10.3% the previous day.
In the bond market, Treasury bond yields returned to the rise, increasing pressure on global financial markets. Higher yields make mortgages and other types of borrowing more expensive for individuals and businesses, slowing the pace of economic growth. It also negatively affects the prices of various assets, from stocks to gold and digital currencies.
Treasury bonds:
High Treasury yields and turmoil in the bond market were among the factors Trump cited a year ago, when he backed away from his initial threats to impose global tariffs on “Emancipation Day.” These moves led his critics to accuse him of repeatedly retreating, known as “tacos,” when financial markets were under great pressure.
The 10-year Treasury yield rose to 4.38%, compared to 4.34% late Monday, and from just 3.97% before the outbreak of war.
The two-year Treasury bond yield, which more accurately reflects the Federal Reserve’s monetary policy expectations, also rose to 3.89%, compared to 3.83% at the end of Monday’s trading.
Interest Expectations:
The Federal Reserve entered this year with expectations of resuming interest rate cuts, which would have supported the economy. However, the sharp rise in oil prices increased the risks of inflation, to the point that it prompted traders to reduce their bets on an interest rate cut during the current year. Some of them have even begun betting on the possibility that the central bank will have to raise interest rates by December, according to CME Group data.
High interest rates would slow economic growth, but in return, it would contribute to curbing inflation.
On Wall Street, Estée Lauder shares fell by 9.3%, recording one of the market’s largest losses, after the company confirmed that it had entered into merger negotiations with the Spanish cosmetics company “Puig.” This potential deal may lead to bringing together brands such as “MAC”, “Clinique”, “Charlotte Tilbury” and “Apivita” under the umbrella of one company, although Estée Lauder has confirmed that no final decision has been made yet.
Private credit sector pressures:
Ongoing concerns about the private credit sector also contributed to increasing pressure on the market.
This sector had provided loans to software companies and others, which may face difficulties in repayment as a result of fierce competition from artificial intelligence companies and other challenges. This prompts investors to withdraw their funds, making it more difficult to manage these funds, given the long-term nature of the loans.
A fund affiliated with Apollo Global Management joined the list of funds that announced restrictions on withdrawals, as investors will not be allowed to recover all of their money. Apollo Debt Solutions BDC set the ceiling for withdrawals at 5% of the fund’s assets, after withdrawal requests exceeded 11%. Apollo Global Management shares fell by 4.9%.
Had it not been for the positive performance of Smithfield Foods, the market’s losses would have been greater, as its stock rose by 7.6% after announcing quarterly financial results that exceeded analysts’ expectations in terms of profits and revenues.
In terms of global markets, the performance of European indices varied, while Asian stocks recorded an increase in their first trading session following Trump’s announcement of talks with Iran. The Hang Seng Index in Hong Kong jumped by 2.8%, and the KOSPI Index in South Korea rose by 2.7%, recording among the largest gains in global markets. (Al Ain News)
