Markets Tumble for Fifth Week as Iran Crisis Drives Inflation Fears, Erasing Rate Cut Hopes

Markets Hit Breaking Point as Iran Crisis Deepens

US stock markets are heading for their fifth consecutive losing week as the escalating conflict with Iran triggers a painful reassessment of the economic outlook. The physical closure of the Strait of Hormuz, a critical channel for about 20% of the world's oil, is pushing energy prices skyward and forcing economists to raise their inflation forecasts, leaving investors with few safe places to put their money.

Fifth Straight Week of Losses

The selloff is becoming more severe, with the S&P 500 on track for its longest weekly losing streak since 2022. The tech-heavy Nasdaq Composite has officially entered a correction, a term meaning it has fallen more than 10% from its October record. The broader S&P 500 has also breached a key technical level, trading below its 200-day moving average for the first time since spring 2025. This downturn signals weakening investor confidence over the long term. A notable shift in sentiment is also apparent among everyday investors, who are reportedly growing fatigued and abandoning their previous habit of buying on market dips.

What makes this period particularly troubling is the failure of traditional hedges. In times of crisis, investors often flock to assets like gold and government bonds for safety. However:

• Gold has fallen roughly 15% since the war began, on track for its worst month since 2008.
• Government bonds have also declined in price, pushing their interest rates (yields) higher as inflation fears outweigh the usual demand for safety.

With stocks, bonds, and gold all falling together, the US dollar has been the only consistent winner, climbing to a 10-month high.

Inflation Fears Eliminate Rate Cut Hopes

The Organisation for Economic Co-operation and Development (OECD) now projects US inflation will hit 4.2% in 2026, a sharp increase from previous estimates and significantly higher than the US central bank's (the Federal Reserve) own 2.7% forecast. This surge, driven by high energy prices, has completely changed the outlook for interest rates.

Markets now believe there is a greater than 50% chance that the Federal Reserve will not cut interest rates at all in 2026, with a small but growing chance of another rate hike. The Fed is in a difficult position: it cannot lower rates to support the economy without risking even higher inflation, as the core problem is a physical supply disruption it cannot control.

The Iran Impasse: A Fragile Pause

President Trump's announcements of military pauses are being met with deep scepticism. While his latest extension of a truce by another 10 days did cause oil prices to retreat temporarily, the reprieve was short-lived, with crude prices pushing past $110 per barrel. This failed to spark a wider relief rally in the stock market.

Investors now understand that diplomatic statements mean little while the Strait of Hormuz remains under threat. Tehran has rejected US peace proposals and is demanding formal authority over the Strait, a condition Washington is highly unlikely to accept. Underscoring the market's anxiety, the Pentagon is reportedly preparing to send about 3,000 more troops to the region.

Technical Picture: Weekend on a Knife-Edge

The market has become extremely skittish, with many analysts noting that traditional chart analysis is taking a back seat to geopolitical headlines. Investor sentiment is particularly fragile ahead of the weekend, with widespread anxiety over the possibility of a US ground invasion.

This creates a binary set of outcomes:

• Downside Risk: If a ground invasion occurs, markets are expected to sell off sharply. For sellers to take full control, the S&P 500 would need to break below the critical 6450 support level. The 6500-6510 zone is currently acting as a temporary floor.
• Upside Potential: If the worst fears do not materialise over the weekend, a sharp counter-trend rally could occur as relief floods the market. In this scenario, a swift move towards the 6660 resistance level is possible.

Corporate Corner: Big Tech, Big Oil, and Big Plans

The turbulent market is creating clear winners and losers across different sectors. Energy firms are thriving, while technology companies face a variety of headwinds. At the same time, ambitious corporate plans are moving forward, highlighting both immense potential and significant challenges.

SpaceX Prepares for Record-Breaking IPO

Elon Musk's SpaceX is reportedly preparing for what could be the largest Initial Public Offering (IPO) in history. The company is targeting a valuation of around $1.75 trillion and aims to raise up to $75 billion. For comparison, Saudi Aramco's 2019 record was just $29 billion.

In a highly unusual move, Musk is considering reserving up to 30% of the shares for everyday retail investors, a huge increase from the typical 5-10% allocation. If this happens, it could set a new precedent for how major companies go public.

Big Oil's Windfall Quarter

With Brent crude oil trading around $108 a barrel (and recently topping $110), energy giants are reporting a surge in profits. The S&P 500 energy sector has hit an all-time high and is the only major sector with positive returns this quarter.

• ExxonMobil likely generated an extra $5.1 billion in revenue in March alone.
• Chevron is estimated to have brought in an additional $4 billion.

US and Canadian shale producers are the biggest winners, as they have no exposure to the Middle East and can sell their oil at premium prices.

Big Tech Stumbles on Legal and Market Woes

The technology sector has been the worst-hit in the recent selloff. Stocks like AMD, Meta, and Nvidia have seen significant declines. Adding to the pressure, Meta (owner of Instagram) saw its shares fall 8% and helped drag the Nasdaq into correction territory after a California jury found its platform liable for being harmfully addictive to younger users. Google (owner of YouTube) was also found liable in the same ruling, which could open the door to a wave of similar lawsuits and create long-term legal uncertainty for the social media giants.

Wall Street Embraces Blockchain Technology

Away from the daily market turmoil, a major structural shift is gathering pace as traditional finance giants begin adopting blockchain technology. This process, often called tokenisation, involves converting real-world assets like shares or fund units into digital tokens that can be traded 24/7 on a blockchain, bypassing older, slower systems.

• Franklin Templeton, a massive asset manager, has partnered with Ondo Finance to issue tokenised versions of its Exchange-Traded Funds (ETFs).
• This follows moves from the New York Stock Exchange (NYSE) to build a platform for on-chain trading and the Depository Trust & Clearing Corporation (DTCC), which processes trillions in trades, receiving regulatory approval to tokenize US government bonds.

This trend signals that the core infrastructure of financial markets is slowly being modernised, a long-term development that could increase efficiency and accessibility for investors.

Software Sector Faces an AI Reckoning

Meanwhile, the broader software sector is facing its worst period since 2008, as investors grapple with a new threat: AI automating the very jobs software was meant to serve. Reports that Amazon Web Services is building AI agents to handle sales and business development sent shockwaves through the industry, hitting shares in companies like UiPath and HubSpot.

However, the story is not one-sided. While some firms are threatened, others are reaping huge benefits. Chief Financial Officers at major companies are reporting massive efficiency gains from using generative AI:

• ServiceNow claims AI has already delivered $355 million in savings.
• Levi Strauss is using an AI agent to process wholesale orders in minutes instead of days.

AI Infrastructure Heats Up as Server Giants Rally

The AI investment theme is also evolving. After an initial obsession with graphics chips (GPUs), investors are now looking at the companies that build the complete server systems that house them. It turns out that central processing units (CPUs) are critical for managing the complex data tasks GPUs cannot handle alone. This realisation has propelled server makers HP and Dell to the top of the S&P 500, with weekly gains of 11.8% and 7.5% respectively.

Costco's Kirkland Squeezes Energy Drink Giant Celsius

In the retail space, a new battle is brewing. Costco's private label, Kirkland, has launched an energy drink that closely copies the look, flavours, and caffeine content of the popular brand Celsius, but for about half the price. The news sent shares of Celsius, which relies on Costco for 11% of its annual sales, tumbling 16.6% in a week.

Nuclear Reboot Hits a Snag

Constellation Energy's plan to restart the Three Mile Island nuclear power plant has hit a major bureaucratic hurdle. The regional grid operator, PJM Interconnection, has stated the plant cannot be connected to the grid until 2031, a four-year delay. The project's viability depends on a major power-supply contract with Microsoft, which is now at risk. This situation highlights a core problem in the energy transition: new clean power sources are ready, but the infrastructure to connect them is lagging years behind.

AI Firm Anthropic Wins Injunction Against US Government

In a significant legal development for the AI industry, a federal judge granted AI startup Anthropic a preliminary injunction in its lawsuit against the Trump administration. The company had sued to reverse its blacklisting by the Pentagon and a ban on federal agencies using its Claude AI models. The judge ruled that the government's action appeared to be "classic illegal First Amendment retaliation," a major win for the company.

Economic Headwinds: Jobs, Housing, and Consumers

Beyond the geopolitical crisis, several key economic indicators are pointing to growing pressure on businesses and households.

Labour Market Shows Resilience, But Risks Remain

On the surface, the job market appears strong. The number of people filing for unemployment benefits for the first time fell to 210,000 last week, lower than expected. This suggests that companies are not currently laying off workers in large numbers.

However, Goldman Sachs has warned that the Iran war could eventually cost the US economy 10,000 jobs a month. The logic is simple: higher oil prices act as a tax on consumers, reducing their spending on other goods and services, which in turn leads to lower demand and potential job cuts.

Housing Market Feels the Squeeze

Mortgage rates in the UK and US have risen for the fourth consecutive week, hitting six-month highs. The primary driver is the expectation that central banks will keep interest rates higher for longer to fight inflation. This makes buying a home more expensive and is already changing buyer behaviour.

A new trend shows young homebuyers increasingly abandoning expensive coastal cities like London or Los Angeles in favour of more affordable areas, such as the US Midwest. Cities like Omaha and Cincinnati are becoming hotspots as buyers search for value in a high-rate environment.

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NOTE: This content is for informational and educational purposes only and does not constitute financial advice. Always do your own research. Not financial advice (NFA).