The financial world was roiled by a flare-up in geopolitical risks that sent stocks sliding — while spurring a flight to the safest corners of the market such as bonds and the dollar. Oil rose.

Equities saw their worst day since January after a news report that Israel was bracing for an attack by Iran on government targets. Approximately 40 launches were identified crossing from Lebanese territory, some of which were intercepted, the Israel Defense Forces wrote in a post on X. U.S. President Joe Biden said he expects Iran will attack Israel sooner rather than later — and his message to Iran is “don’t” do it.

Wall Street’s “fear gauge” — the VIX — spiked to levels last seen in October.

To Matt Maley at Miller Tabak, investors have been much too complacent about geopolitical issues.

“Since gold and oil have been pricing in a meaningful impact on the marketplace from this crisis, it’s not out of the question that the stock market will follow those other markets and see an outsized reaction before long,” Maley noted.

The S&P 500 fell 1.5 per cent Friday, with banks and chipmakers leading losses. The gauge posted its biggest weekly drop in 2024. Treasury 10-year yields sank seven basis points to 4.52 per cent. Andrew Brenner at NatAlliance Securities also cited “massive short covering” and rate locking before an expected flurry of debt issuance by banks after earnings.

The dollar notched its best week since September 2022. Brent oil settled above US$90. Gold topped the $2,400-an-ounce mark before erasing gains.

Treasuries rallied sharply, following the market’s worst two days since February, in which yields reached year-to-date highs after inflation readings savaged expectations for Federal Reserve interest-rate cuts this year. Two-year yields — which briefly topped 5 per cent this week — plunged on Friday.

“Risk was off the menu on Friday,” said Fawad Razaqzada at City Index and “Investors were lighting up on risk exposure ahead of the weekend, fearing risk assets could gap lower should something happen.”

A direct confrontation between Israel and Iran would mean a significant escalation of the Middle East conflict and would lead to a significant rise in oil prices, according to Commerzbank analysts including Carsten Fritsch.

Escalating geopolitical tensions — most recently in the Middle East, but also including attacks on Russian energy infrastructure by Ukraine — have spurred bullish activity in the oil options market. There’s been elevated buying of call options — which profit when prices rise — in recent days, with implied volatility jumping.

Jose Torres at Interactive Brokers says the latest developments illustrate how investor sentiment and high equity valuations are vulnerable to geopolitical conflicts, persistent inflation and oil prices. 

“Investors have pushed back their expectations for the start of the Fed’s easing cycle — with geopolitics possibly replacing the Fed as one of the market’s top volatility influencers,” he noted.

As Wall Street’s earnings season kicked off, big banks’ results offered the latest window into how the U.S. economy is faring amid an interest-rate trajectory muddied by persistent inflation. 

JPMorgan Chase & Co. and Wells Fargo & Co. both reported net interest income — the earnings they generate from lending — that missed estimates amid increasing funding costs. Citigroup Inc.’s profit topped forecasts as corporations tapped markets for financing and consumers leaned on credit cards.

“Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces,” JPMorgan’s Chief Executive Officer Jamie Dimon said. He cited the wars, growing geopolitical tensions, persistent inflationary pressures and the effects of quantitative tightening.

Meantime, the latest economic data did little to alter the reduced risk appetite on Friday — with consumer sentiment down as inflation expectations rose.

BlackRock Inc. Chief Executive Officer Larry Fink said he expects the Fed to cut rates twice at the most this year, and that it will be difficult for the central bank to curb inflation. 

Fink told CNBC he would “call it a day and a win” if the inflation rate gets to between 2.8 per cent and 3 per cent, which is above the Fed’s 2 per cent target.

Pacific Investment Management Co. warned that the Fed could pivot back toward interest rate hikes if U.S. inflation moves higher — with the asset manager preferring to buy bonds in other markets.

“If inflation starts to re-emerge then there’s a possibility that the Fed hikes instead of delivering any cuts,” Mohit Mittal, chief investment officer for core strategies at Pimco, said in an interview on Bloomberg Television.

Traders also kept an eye on the latest Fedspeak. A slew of officials emphasized Friday that there is no urgency to lower interest rates, pointing to still-elevated inflation and a robust labor market.

That included comments from both the Boston Fed’s Susan Collins as well as San Francisco’s Mary Daly. Atlanta’s Raphael Bostic repeated his view for one rate cut toward the end of the year, and Kansas City’s Jeffrey Schmid noted he prefers a “patient” approach to reductions. 

While shifting expectations around the timing and pace of the first cuts are likely to create further yield volatility in the near term, UBS’s Chief Investment Office thinks the more important point is that the U.S. central bank remains set to start easing this year. 

With a low probability of the Fed needing to hike rates further, CIO maintains their positive outlook on quality bonds.

“We continue to favor quality bonds in our global portfolios and recommend investors lock in attractive yields before rates fall this year,” said Solita Marcelli at UBS Global Wealth Management. “We like those with 1–10-year duration, as well as sustainable bonds.” 

“We also think investors should consider an active exposure to fixed income to improve diversification,” she concluded.

Corporate Highlights:

  • United States Steel Corp. shareholders voted in favor of a $14.1 billion takeover offer by Nippon Steel Corp., leaving the fate of the deal for the iconic American steelmaker to the realm of U.S. regulators and politics.
  • BlackRock Inc.’s long-term investment funds took in $76 billion of net inflows in the first quarter, helping to push the world’s largest money manager to a record $10.5 trillion of client assets.
  • Exxon Mobil Corp. formally approved its sixth Guyanese oil development that will make the Latin American nation a bigger crude producer than OPEC member Venezuela.
  • Beijing has ordered telecom carriers like China Mobile Ltd. to replace foreign chips in their core networks by 2027, the Wall Street Journal reported, citing people familiar with the matter.
  • Activist investor Barington Capital Group L.P. is calling on Paramount Global to end exclusive talks with media mogul David Ellison and consider rival proposals, including one from Apollo Global Management Inc.

Some of the main moves in markets:


  • The S&P 500 fell 1.5 per cent as of 4 p.m. New York time
  • The Nasdaq 100 fell 1.7 per cent
  • The Dow Jones Industrial Average fell 1.2 per cent
  • The MSCI World index fell 1.2 per cent


  • The Bloomberg Dollar Spot Index rose 0.7 per cent
  • The euro fell 0.8 per cent to $1.0637
  • The British pound fell 0.8 per cent to $1.2447
  • The Japanese yen was little changed at 153.26 per dollar


  • Bitcoin fell 5.2 per cent to $66,823.88
  • Ether fell 8.8 per cent to $3,214.92


  • The yield on 10-year Treasuries declined seven basis points to 4.52 per cent
  • Germany’s 10-year yield declined 10 basis points to 2.36 per cent
  • Britain’s 10-year yield declined six basis points to 4.14 per cent


  • West Texas Intermediate crude rose 0.6 per cent to $85.54 a barrel
  • Spot gold fell 1.3 per cent to $2,342.74 an ounce