Dow Jones, Nasdaq, S&P 500 Preview: Trump pauses actions, Iran war becomes the focus

Investing.com - On Friday, the stock market plunged sharply amid volatile trading, with little sign of easing tensions between the U.S., Israel, and Iran, while rising oil prices added to global market pressure.

The Dow Jones Industrial Average fell 443.96 points, or 0.96%, to close at 45,577.47. The S&P 500 declined 1.51% to 6,506.48, and the Nasdaq Composite dropped 2.01% to 21,647.61. The small-cap Russell 2000 index fell over 2%, entering correction territory, defined as a 10% decline from recent highs.

At the intraday lows, both the Dow and Nasdaq briefly entered correction territory before rebounding slightly before the close.

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This decline followed a new round of clashes between Iran and Israel, with Iran also launching new strikes on energy infrastructure in the Persian Gulf. The Wall Street Journal citing U.S. officials reported that the Pentagon is deploying thousands of additional Marines to the region.

Later in the day, Reuters reported that Iraq had declared force majeure on all oil fields operated by foreign companies, further intensifying selling pressure. Oil prices surged on this news.

Concerns over rising inflation and the possibility that the Federal Reserve may delay interest rate cuts also pushed U.S. Treasury yields higher, further pressuring the stock market on Friday.

The major indices have now fallen for four consecutive weeks. The S&P 500 showed relative resilience, down about 7% from recent highs.

Trump delays strike on Iran, stocks rise, oil falls

The Middle East crisis is expected to remain a key focus for markets in the short term, with investors closely watching developments in Iran and the impact of rising energy prices.

As the conflict between the U.S., Israel, and Iran enters its third week, oil prices have risen over 40%, sparking concerns about inflation and slowing economic growth.

However, markets rebounded on Monday after U.S. President Donald Trump announced a delay in planned military strikes on Iranian power plants and energy infrastructure, easing fears of deeper supply shocks.

Market reactions were swift: Brent crude oil plummeted, the dollar weakened against major currencies, stocks rose, and government bond yields declined.

Trump stated that the delay was due to productive discussions with Iran, but reports from Iranian media questioned this, limiting market gains.

Iran’s Fars News Agency citing sources said there was no direct or indirect communication between Iran and the U.S., contradicting Trump’s comments about “productive” talks. The report also said that Washington, after warning Tehran of retaliation against energy facilities across West Asia, abandoned plans to strike Iranian power plants.

Nonetheless, the overall market tone remains more positive. As of 09:13 a.m. Eastern Time (21:13 Beijing time), S&P 500 futures were up about 2%, indicating a strong open on Wall Street, while the European Stoxx 600 rose 1.5%.

Brent crude oil fell more than 8% to $97.25 per barrel.

Analysts’ views on the U.S. stock market

JPMorgan: “We believe current stock valuations are not inconsistent with recent oil price volatility. Looking back at all instances where oil prices surged at least 50-60% in a short period — as we are currently experiencing — we note that stocks have historically risen an average of 1% during these periods, with recent peaks/troughs at -7%, indicating some risk is already priced in.”

“To stabilize the stock market, besides oil prices, bond yields also need to stabilize.”

“Finally, we reiterate our early March view that the lag in major tech stocks and AI-related sectors may be excessive, and there are some better tactical trading opportunities.”

Evercore ISI: “Amid headlines about AI disruption, credit cracks, and Iran volatility, a major fact is overlooked — corporate productivity is surging. Non-farm business sector real output per hour is significantly above pre-pandemic trends. U.S. efficiency has grown at an annualized rate of 2.2% since 2020, the highest since the internet boom. The best times may still be ahead.”

“The pandemic-driven trend combined with rapid AI advances could push productivity growth to 3% for the rest of this decade. This could further support corporate profit margins, ease inflationary wage pressures from demographic shifts, and reinforce Evercore ISI’s view that the market’s cycle peak is still ahead, just delayed, not derailed. The S&P 500 is expected to achieve double-digit earnings growth, with positive returns in 10 of the past 11 years since 1996, averaging 13%.”

Goldman Sachs: “Upcoming large IPOs are prompting some of the biggest U.S. index providers to reconsider their inclusion rules.”

“Even with potential index changes, large IPOs with low liquidity will have significant weight in the Nasdaq 100, but relatively smaller weight in the S&P 500 and Russell 1000 growth indices.”

“The addition of high market cap but low liquidity stocks to indices will exert less selling pressure on existing components than many investors fear.”

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