Iran Tensions Lift Oil, Pressure Equities

Stocks pulled back Thursday as rising U.S.-Iran tensions pushed oil to a six-month high and tempered risk appetite. The S&P 500 snapped a three-day rebound, with broad weakness offset only modestly by small-cap resilience. Treasuries were largely unchanged despite a strong TIPS auction, while gold hovered near record levels and the dollar firmed. Under the surface, stress in private credit added to investor caution ahead of key GDP and inflation data due Friday.

Key Headlines & Market Movers:

• Geopolitical Risk Lifts Oil, Caps Risk Appetite: Escalating rhetoric between the U.S. and Iran, alongside an expanded U.S. military presence in the Middle East, drove crude to its highest level since August. With roughly a third of global oil supply flowing through the Strait of Hormuz, markets are increasingly sensitive to disruption risk. While most strategists still see diplomacy as the base case, the rise in oil is reinforcing inflation concerns and limiting upside in equities near term.
• Private Credit Concerns Resurface: Blue Owl’s decision to restrict redemptions in a private credit fund triggered sharp declines across alternative asset managers, including Apollo, Ares, and TPG. The move reignited concerns about liquidity mismatches in the $1.8 trillion private credit market. While this appears isolated for now, it’s a reminder that tighter financial conditions can surface in less transparent corners of the market first.

Earnings Mixed - Retail and Consumer in Focus: Walmart delivered solid U.S. comparable sales but issued a conservative outlook, reinforcing the theme of resilient but cautious consumers. Carvana fell sharply on profitability misses, while DoorDash rose on stronger order guidance. Mega-cap tech was mixed. Reports that OpenAI is nearing a $100 billion funding round underscore the continued capital intensity of AI infrastructure, but big tech stocks lacked clear direction. The tone suggests investors are becoming more selective rather than indiscriminately bidding up AI exposure.

• Macro Data Ahead - Inflation in the Spotlight: Jobless claims showed further labor market stabilization, while housing data weakened. Trade flows continue to shift under the weight of tariffs. Friday’s first estimate of Q4 GDP and the Fed’s preferred inflation gauge will be key. After Fed minutes flagged lingering price pressures, markets are especially sensitive to any upside inflation surprise, particularly with oil climbing again.

S&P 500 Sector Performance

Looking Ahead

Markets are navigating a mix of geopolitical risk, sticky inflation concerns, and pockets of financial stress all while earnings growth broadens globally. For now, the pullback appears orderly rather than panic-driven with the next catalyst being Friday’s inflation data. If price pressures reaccelerate alongside higher oil, rate expectations could shift. Absent that, geopolitical headlines will likely continue to drive short-term volatility, but without forcing a structural change in positioning.

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