U.S. stocks ended sharply
lower on Tuesday as investors worried the Middle East conflict
may persist long enough to ramp up inflation.
Selling was broad-based and the Cboe Volatility index
registered its highest closing level since November.
Still, indexes finished well off their lows of the day, with the
S&P 500 ending down 0.9% after falling more than 2% early in the
session.
Investors are concerned about the effect of the conflict,
now in its fourth day, on inflation as oil prices extended sharp
gains. Israeli and U.S. forces hit targets across Iran,
prompting Iranian retaliatory strikes around the Gulf as the
conflict spread to Lebanon.
“There seems to be some notion that perhaps (the Iran war)
will persist longer than people thought 24 hours ago, because
it’s spreading and starting to potentially impact energy
infrastructure,” said Chuck Carlson, chief executive officer of
Horizon Investment Services in Hammond, Indiana.
Tuesday, however, marked a second day where indexes cut
sharp early losses.
Jed Ellerbroek, portfolio manager at Argent Capital, said
the market’s reaction to the conflict “so far is very tame,”
which suggests investors’ tolerance for risk remains somewhat
intact. He noted that software stocks, which had sold off
recently, were outperformers. The S&P 500 software and services
index rose 1.6%.
The Dow Jones Industrial Average fell 403.51 points,
or 0.83%, to 48,501.27, the S&P 500 lost 64.99 points, or
0.94%, to 6,816.63 and the Nasdaq Composite lost 232.17
points, or 1.02%, to 22,516.69.
In a potentially bearish signal, the S&P 500 closed below
its 100-day moving average for the first time since November 20.
“Investors are grappling with the volatility and the news,
and they’re looking at their portfolios and saying, wow, this
could get worse… This is the fear of it getting worse,” said
Oliver Pursche, senior vice president and advisor at Wealthspire
Advisors in Westport, Connecticut.
“But our advice to clients is to take a step back and wait
and see.”
Shares of Blackstone were down 3.8% after its
flagship credit fund, BCRED, saw a surge in redemption
requests.
Tehran’s threat to attack any vessel attempting to transit
the Strait of Hormuz, combined with production halts by several
Middle Eastern oil and gas producers, has driven up global
shipping rates and prices of crude and natural gas. The strait,
a critical chokepoint, carries roughly one-fifth of the world’s
total oil consumption.
President Donald Trump on Tuesday said he had ordered the
U.S. International Development Finance Corporation to provide
political risk insurance and financial guarantees for maritime
trade traveling the Gulf, adding that the U.S. Navy could begin
escorting oil tankers through the Strait of Hormuz if necessary.
Investors worry that the higher oil prices could fuel
inflation and complicate central bank policy decisions already
strained by tariff-driven price increases. U.S. Treasury yields
rose for a second straight session.
Declining issues outnumbered advancers by a 4.1-to-1 ratio
on the NYSE. There were 137 new highs and 167 new lows on the
NYSE.
On the Nasdaq, 1,262 stocks rose and 3,540 fell as declining
issues outnumbered advancers by a 2.81-to-1 ratio.