Key Takeaways:
Global stock markets tumbled in March, with the S&P 500 falling 7.3% since the conflict began, as the war in Iran sent oil prices surging to their largest monthly gain on record.
"This is not a spike driven by fear alone," Stephen Innes, managing partner at SPI Asset Management, said in a note. "This is a repricing of availability. When transit falters and liquidity thins in the futures market, the barrel stops being just a commodity and starts behaving like a constraint on the entire system."
The war, which entered its fifth week, triggered a historic spike in energy prices, with international benchmark Brent crude soaring about 55% for its largest monthly gain since 1988. U.S. West Texas Intermediate crude gained 53% to settle at $102.88 a barrel. The volatility was not contained to energy, as the Dow Jones Industrial Average and the Nasdaq Composite fell into correction territory, defined as a drop of more than 10% from a recent high. The CBOE Volatility Index, or VIX, jumped to 31.05.
With the critical Strait of Hormuz — a chokepoint for a fifth of the world's oil supply — effectively closed, investors are grappling with the dual threats of sustained energy-driven inflation and a potential global recession. The March jobs report, due Friday, will provide the next major data point on the health of the U.S. economy amid the turmoil.
The conflict's impact on energy infrastructure has been the primary driver of market chaos. Brent crude futures closed the month at $112.78 per barrel, a level unseen since mid-2022. The surge came as U.S. and Israeli forces continued operations in Iran and Yemen-based Houthi rebels entered the conflict, raising the threat of further disruption to shipping in the Red Sea.
Analysts warned that prices could climb higher if the conflict drags on. "If we have another four million barrels taken out of the Red Sea, on top of what we already have, then this leg's oil price is much, much higher," Michael Haigh, global head of commodities research at Societe Generale, told CNBC. The bank's analysis suggested a prolonged disruption could push prices toward $150 per barrel.
The spike has left oil drillers, who would typically benefit from higher prices, hesitant to commit to new investments due to the extreme uncertainty. "It’s just really difficult to make any kind of intelligent decisions in that environment,” Kimmeridge managing partner Mark Viviano told The Wall Street Journal.
The turmoil created a market where, as one portfolio manager noted, there was "no place to hide." All 11 sectors of the S&P 500 except for energy were in the red for March. The pan-European Stoxx 600 index suffered its worst month since the COVID-19 selloff in March 2020.
Traditionally, investors flock to safe havens like gold and government bonds during times of geopolitical stress. However, March saw these assets sell off alongside equities. The spot price of gold plunged nearly 15%, marking its worst month since the 2008 financial crisis, as some investors were likely forced to sell the metal to cover losses elsewhere.
Government bonds also offered little protection. The yield on the benchmark U.S. 10-year Treasury note climbed to 4.438% as investors priced in the risk that soaring energy costs will keep inflation "higher-for-longer," diminishing the appeal of fixed-income securities.
This article is for informational purposes only and does not constitute investment advice.
