The conflict in Iran and the surge in energy prices have rattled international markets, impacting not only equities but also traditional safe havens such as bonds, gold, and currencies. This leaves investors with fewer places to shelter.
The Dow, S&P 500, and Nasdaq are all poised for their worst month of the year. When stocks struggle or economic uncertainty looms, defensive assets like gold or government bonds typically offer investors some buffer. However, this month both have declined alongside stocks, providing little insulation from the turmoil.
U.S. stocks concluded Thursday lower: the Dow dropped by 469 points, marking a 1.01% decrease. The S&P 500 fell by 1.74%, experiencing its most significant single-day decline in two months. The Nasdaq plunged by 2.38%, closing in correction territory, more than 10% below its late October peak.
Gold futures retreated by 4%, while Treasury yields increased as investors sold off bonds.
“Volatility persists when uncertainty is high,” stated Mitch Hammer, founder and lead advisor at Intersecting Wealth. “We are seeing volatility in equities, volatility in Treasuries—it’s everywhere you look.”
The market reaction was sharp due to the direct effect on oil prices and the ambiguity surrounding the conflict’s duration. Oil prices surged on Thursday amidst growing investor doubt about efforts to cease the fighting: Brent crude rose by 5.7% to settle at \$108.01 a barrel. U.S. oil climbed 4.6% to reach \$94.48 per barrel.
“It all ties back to the oil markets and the implications for inflation,” commented Adam Tverkiest, Chief Technical Strategist at LPL Financial. “There is genuinely no clarity on when this war will conclude, despite a good deal of confusing commentary.”
The S&P 500 is down over 7% from its late January record high, and uncertainty may persist as long as the Strait of Hormuz remains effectively blockaded.
Gold has fallen nearly 17% throughout this month, sending it toward its worst monthly performance since October 2008. Rising oil prices and the prospect of energy inflation are reshaping central banks’ outlooks globally. Higher-for-longer interest rates increase the opportunity cost of holding gold, an asset that yields nothing.
Bond prices fell this month, resulting in higher yields. Treasury yields rose as investors adjusted inflation expectations and anticipated cuts in interest rates.
“The global bond market sell-off continued through the London and European sessions, with focus remaining on potential central bank reactions to escalating oil prices,” noted John Canavan, Lead Analyst at Oxford Economics, in a Thursday memo.
Long-term bond yields also climbed just as the Trump administration is seeking \$200 billion to fund operations concerning Iran—a situation that heightens deficit concerns.
The U.S. dollar has served as a partial safe haven, gaining 2.4% this month. Short-term money market funds and cash equivalents may offer shelter from the turbulence. Traders are pricing in a scenario where the Federal Reserve refrains from cutting rates this year, which could also cause money market funds and savings rates to remain elevated for an extended period.
“The Strait of Hormuz remains effectively shut, the conflict is not over, and Truth Social posts will not substitute for concrete diplomatic discussions that could bring about a lasting cessation of hostilities in the region,” asserted Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial.
“Our advice to most investors is to stay informed, refrain from overreacting to headlines, and maintain a balanced investment approach amidst potential ongoing short-term volatility,” Saglimbene concluded.
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