On the 4th (local time), the three major New York stock indexes all closed lower. Tensions in the Middle East flared again, sending global oil prices sharply higher. Investors, worried about a rekindling of inflation, showed risk-asset aversion.
On the New York Stock Exchange, the Dow Jones Industrial Average closed at 48,941.90, down 557.37 points, or 1.13%, from the previous session. The large-cap-focused Standard & Poor's (S&P) 500 index fell 0.41% to 7,200.75. The tech-heavy Nasdaq composite also slipped 0.19% to 25,067.80 at the close.
Experts said renewed unease in the Middle East weighed on investor sentiment. President Donald Trump said on social media that he would launch Project Freedom to protect vessels transiting the Strait of Hormuz. The Strait of Hormuz is a critical chokepoint for the world's major crude oil shipments.
However, the United Arab Emirates (UAE) said it intercepted missiles launched by Iran on the day. In the Persian Gulf, the United States and Iran engaged in combat.
Global oil prices also surged. West Texas Intermediate (WTI) futures jumped 4.39% to settle at $106.42 per barrel. Brent, the global benchmark, also soared 5.8% to $114.44 per barrel. Higher energy prices feed directly into increased corporations production expense and higher consumer prices.
The spike in oil prices also affects the Federal Reserve's currency policy. When prices rise, the Fed finds it harder to cut the benchmark rate. John Williams, president of the New York Federal Reserve Bank, said in a speech that supply-chain disruptions stemming from the Middle East would keep inflation elevated. Williams projected this year's inflation rate would hover around 3%, above the Fed's 2% target.
Experts watched the potential ripple effects of the Middle East crisis on the economy. Darrell Cronk of Wells Fargo Investment Institute warned that even if the clashes ease immediately, the aftershocks would linger for quite some time. "The impact on energy prices, industrial activity, and the geopolitical risk premium will not fade quickly," Cronk said. Jay Hatfield, CEO of Infrastructure Capital Advisors, noted the possibility of a military solution, saying, "Iran will not unilaterally give up its nuclear capability."
Individual corporations news also rattled the market. Amazon said it would open its in-house freight distribution and delivery network to the general corporations market. Shares of incumbent logistics firms plunged on word that the giant e-commerce company would fully enter the logistics market. GXO Logistics sank nearly 18%. UPS and FedEx tumbled 10% and 9%, respectively.
Video game retailer GameStop proposed to acquire the e-commerce platform eBay for $55.5 billion (about 74 trillion won). The offer is half cash and half stock, paying $125 per share. That is a 20% premium to eBay's close on the 1st ($104.07). After the close, the news sent eBay shares up as much as 13.4% in after-hours transactions. GameStop CEO Ryan Cohen told CNBC that he had not yet begun talks with eBay's management.
On the day, energy was the only one of the 11 S&P 500 sectors to rise, up 0.6%. These are corporations that benefit directly from higher oil prices. APA climbed nearly 4%, and Diamondback and Marathon Petroleum jumped about 3% and 2%, respectively.
The 10-year U.S. Treasury yield rose 0.07 percentage point to 4.44%. The 30-year Treasury yield topped 5%. Adam Parker of Trivariate said that given the record rally since 1926, the market is likely to undergo a period of consolidation for the time being.
The cryptocurrency market breathed a sigh of relief on news of greater regulatory clarity. In Congress, a bipartisan agreement was reached on key provisions of the market structure bill for cryptocurrencies (CLARITY Act). The bill limits cryptocurrency corporations from paying interest-like revenue on passive deposits, but allows rewards from transactions or staking activities. On the news, Coinbase rose 2.5% in premarket transactions and related stocks gained. Bitcoin, which topped $80,000 over the weekend, traded around $78,000 on the day.