U.S. Stocks Drop as Iran Tension Slows Risk Rally: Markets Wrap

(Bloomberg) -- U.S. stocks closed lower after touching record highs as an escalation of tensions with Iran cooled this week’s rally in risk assets sparked by dovish central banks. Oil surged.

The S&P 500 fell for the first time this week even after hitting a fresh intraday high, while the Dow Jones Industrial Average briefly surpassed its Oct. 3 closing record before finishing in the red. The index whipsawed Friday with volumes higher than the 30-day average as futures and options expired. The dollar was lower for a fourth day in the wake of the Federal Reserve’s dovish signals earlier in the week, while gold traded around $1,400 an ounce for the first time since 2013. U.S. crude topped $57 a barrel.

“The last time we had a quad-witching day like this we had similar volatility,” said Sean O’Hara, president of Pacer ETFs Distributors. “Bigger picture issue is I think people are trying to sort of digest all of the news of the week and weigh that against the potential threats in Iran.”

The risk-on mood was damped after President Donald Trump said he approved strikes overnight against Iran in retaliation for downing a U.S. drone, but then called off the operation. West Texas Intermediate posted its biggest weekly increase since December 2016.

"If you look at the markets today, it’s a pretty impressive performance to basically be flat," considering the news coming out of Iran, said David Donabedian, chief investment officer at CIBC Private Wealth Management. “It’s a testament to how important monetary policy is and how much the market is hanging its hat on the Fed here in the second half of the year."

Policy makers in the U.S., Europe and Australia were among those signaling a readiness to do more to support growth this week, helping fuel gains for equities while putting increased pressure on sovereign bond yields. Next week, the trade issue is back up: Trump and Chinese President Xi Jinping are set to meet during the Group of 20 summit in Japan.

The euro strengthened and most European bonds slipped after data showed economic activity in the region improved in June. Health care firms weighed on the Stoxx 600 Index. Asian markets were also red overall, with Japanese, South Korean and Australian shares declining as Chinese stocks rose.

These are the main moves in markets:

Stocks

• The S&P 500 Index fell 0.1% as of 4:11 p.m. New York time. The Nasdaq Composite Index dropped 0.2% and the Dow Jones Industrial Average slumped 0.1%.
• The Stoxx Europe 600 fell 0.4%.
• The MSCI Emerging Market Index was little changed.
• The MSCI Asia Pacific Index dropped 0.4%, the first decrease in four days.

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%, the fourth straight decline.
• The euro gained 0.7% to $1.1372, while the yen weakened 0.1% to 107.40 per dollar.
• The British pound rose 0.3% to $1.2745.
• The MSCI Emerging Markets Currency Index rose less than 0.1%.

Bonds

• The yield on 10-year Treasuries increased 3 basis points to 2.06%.
• Germany’s 10-year yield climbed 3 basis points to -0.29%.
• Britain’s 10-year yield rose 4 basis points to 0.85%.

Commodities

• West Texas Intermediate rose 1.7% to $57.61 a barrel.
• Gold increased 0.8% to $1,399.86 an ounce.
• The Bloomberg Commodity Index fell 0.4%.

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