Record Stock Rally Slips on Iran Clash, Oil Gains: Markets Wrap

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(Bloomberg) — Stocks pulled back on the final trading day of the week, while crude oil rose as escalating Middle East tensions revived concerns over energy supplies, testing the durability of a rally that had lifted equities to record.

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The MSCI All Country World Index, the broadest measure of global equities, slipped 0.3% as clashes between the US and Iran heightened tensions in the Middle East, fueling speculation that higher energy costs would weigh on economic growth. Asian shares fell 1.2%, pulling back from a record close after Wall Street benchmarks also retreated from their peaks.

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Even so, Asian equities were set for a fifth week of gains, the longest winning streak since January. Futures signaled losses may spread to Europe after American forces responded to Iranian attacks on naval destroyers as they sailed in the Strait of Hormuz on Thursday. Some resilience emerged with US stock-index futures rising 0.2%.

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President Donald Trump threatened to hit Iran “more violently” in the future if the Islamic Republic didn’t sign a deal fast. Trump described the action a “love tap” in a telephone interview with ABC News, and said that the ceasefire with Iran was still “in effect.”

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Brent crude climbed 1.2% to around $101 per barrel with traders concerned a prolonged closure of the Strait of Hormuz would disrupt oil and gas supplies. Despite the gain, oil has fallen more than 6% this week.

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Global equities have been boosted in recent weeks by expectations that heavy spending on artificial intelligence will boost corporate profits and revive the so-called AI trade. Even with bouts of volatility, investors remained focused on US de-escalation efforts in Iran, betting that easing geopolitical tensions could keep energy prices in check and support the broader risk backdrop.

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“Equities are looking through the war while oil continues to hold its war premium,” said Hebe Chen, a senior market analyst at Vantage Global Prime in Sydney. That’s “a disconnect that tells you markets have quietly concluded the worst-case scenario is fading and turned to a new page, even if the ink is not yet dry,” she said.

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Elsewhere, the dollar hovered around pre-war levels amid optimism the US-Israel conflict with Iran was nearing an end. The Treasury 10-year yield held at 4.39%, having risen two basis points this week, as elevated oil prices stoked inflation concerns. Gold edged up to about $4,710 an ounce.

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In a bid to ease the crisis, the US president had announced “Project Freedom,” an initiative to help ships transit the strait, before abruptly suspending it. Saudi Arabia and Kuwait have lifted restrictions on the US military’s ability to use regional bases, the Wall Street Journal reported Thursday, indicating that could allow the Trump administration to restart the effort to ease traffic through the strait.

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Washington is waiting on Tehran to respond to its proposal to reopen the strait, with tensions still high in both the Persian Gulf and in Lebanon. An Iranian official said the nation wouldn’t allow a reopening with “an unrealistic plan,” the Wall Street Journal reported, citing Press TV.