Stocks Fall on Middle East Conflict; Bonds Rise
Good morning,
The Dow (-1.3%), NASDAQ (-0.6%) and S&P 500 (-0.4%) finished the week lower. Conversely, taxable bonds were up about 0.4% and tax-free municipal bonds were up about 0.4%. The 10-year Treasury yield fell 0.09% to finish the week at 4.42%. The rise in bonds were associated with a flight to safety due to Friday’s events in the Middle East.
Two key inflation gauges were reported last week for the month of May. The most commonly known one, Consumer Price Index (CPI), rose only 0.1% from the prior month and 2.4% over the prior year. The Produce Price Index (PPI) also rose only 0.1% over the prior month and 2.6% over the prior year. All this data was below economists’ and investors’ expectations, causing both stocks and bonds to rise. Many economists and investors were expecting tariffs to cause inflation to rise, but that hasn’t been seen yet, and still remains uncertain. Regardless, it’s nice to see the markets moving on actual data, rather than rumors from Washington. These data caused stocks to rise until Friday.
On Friday, stocks fell sharply and gave up all of their gains from earlier in the week due to a conflict in the Middle East. Israel attacked nuclear facilities in Iran, and Iran subsequently returned fire. The Middle East situation is tenuous and the next couple weeks will be important to watch in terms of escalation. Iran is one of the world’s largest oil producers, so this conflict caused oil prices to move sharply higher. If the conflict escalates, oil prices could move even higher. If so, that may result in higher gasoline prices in the US, potentially causing some pressure on inflation. Further, if this conflict escalates, it becomes a question of whether and how much the US becomes involved. Those concerns could put pressure on stocks in the near term.
Have a great day and terrific week!
Source: Yahoo Finance
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The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
