By Chuck Mikolajczak and Purvi Agarwal
US stocks tumbled on Friday, with each of the three major US indices falling to their lowest levels in over six months as megacap stocks provided the biggest drag, as the Middle East war continued to stifle risk appetite.
Markets took little solace from US President Donald Trump‘s announcement that he gave Iran another 10 days to reopen the Strait of Hormuz or face the destruction of its energy plants, after Iran rejected his proposals to end the war he launched together with Israel.
Secretary of state Marco Rubio said the US could achieve its objectives in Iran without the use of any ground troops and expected its operation to conclude in a matter of weeks, despite recent deployments of additional forces to the region.
The Dow, S&P 500 and Nasdaq were each poised for their fifth straight weekly decline, the longest such streak in nearly four years. On Thursday, the Nasdaq confirmed it was in correction territory — commonly defined as a drop of 10% from its prior high. The Russell 2000, which was the first on the correction path, confirmed it last Friday. The Dow Jones industrial average fell deeper into correction territory.
“Clearly, the overall tone has turned very negative and now we have broken down into correction territory,” said Ken Polcari, partner and chief market strategist at Slatestone Wealth in Jupiter, Florida.
“In the end, I would view this as a big opportunity, but would not be surprised if we see a drawdown anywhere between 15% to 20% before it is over.”
The Dow fell 666.61 points, or 1.45%, to 45,293.53, the S&P 500 lost 91.89 points, or 1.42%, to 6,385.27 and the Nasdaq Composite lost 420.94 points, or 1.97%, to 20,987.14.
The CBOE Volatility Index, considered Wall Street’s fear gauge, was up 3.41 points at 30.85.
Megacaps were the biggest drag on the benchmark S&P index, with Nvidia down nearly 2% as the biggest weight, while Amazon dropped more than 3%.
Software shares were also under renewed selling pressure with the S&P 500 software and services index off nearly 3% as it touched its lowest level since April 7.
Along with pressure from Amazon, consumer discretionary stocks lost nearly 3% as the worst-performing of the 11 major S&P sectors as cruise operator Carnival slumped nearly 6% after cutting its annual adjusted profit forecast. Fellow cruise operator Norwegian fell almost 7%.
The surge in oil prices along with other products such as fertiliser as a result of the Iran war has fanned inflation fears and dampened expectations that the Federal Reserve and other central banks have room to lower interest rates.
Money market participants are not pricing in any easing from the US Federal Reserve this year, compared with expectations of two cuts before the conflict broke out, according to CME’s FedWatch Tool. Markets are now pricing in a 25.5% chance for a hike of at least 25 basis points at the Fed’s October meeting.
Philadelphia Fed president Anna Paulson acknowledged the risks to the economy from the war, but did not specify what it meant for monetary policy in the near term.
US consumer sentiment fell to a three-month low in March, raising concerns about the economy due to the Middle East war.
