Market sentiment appears deeply intertwined with Middle East tensions and oil price movements. Due to inconsistent signals from the U.S. Trump administration and Iran regarding a potential ceasefire agreement, U.S. Treasury yields surged significantly this week. Concerns mounted that elevated crude prices could fuel inflation, prompting a subsequent decline in U.S. stock indices. The Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq Composite Index all recorded their fifth consecutive week of losses, marking the longest weekly losing streak in nearly four years. The Dow has fallen more than 10% from its record closing high on February 10, becoming the latest major index to confirm a correction, following the Russell 2000 and the Nasdaq. In the coming week, geopolitical factors are likely to continue dominating the market. Investor sentiment remains closely linked to Middle East developments and oil price trends, with a prolonged conflict potentially leading to a gradual accumulation of economic risks.

Economic Pressures Begin to Surface A series of U.S. economic data released this week came in relatively soft. Given the high uncertainty stemming from the Middle East situation, weaker data was somewhat anticipated. The S&P Global US Manufacturing PMI rose to 52.4 from 51.6 in February, exceeding expectations of 51.3. New orders recorded their largest increase since October 2025, primarily driven by stabilizing export demand. However, the S&P Global Services PMI, which accounts for over 60% of the U.S. economy, fell to 51.1 from 51.7 in February, hitting its lowest level in 11 months. The University of Michigan Consumer Sentiment index fell 6% month-on-month to 53.3, below the expected 55.5, reaching its lowest point since December 2025. One-year inflation expectations jumped to 3.8% from 3.4% in February, recording the largest monthly increase since last April. The Atlanta Fed lowered its real-time GDP forecast for the first quarter to 2.0% from 2.3% last Friday. A senior economist at Oxford Economics noted that the ongoing Middle East conflict casts a shadow over the economic outlook, suggesting the situation could escalate from a moderate easing to a severe oil shock. "Our baseline forecast is for continued economic expansion, even as consumers face pressure from rising energy costs and thinner savings buffers. However, if oil prices remain persistently above $140 per barrel, it could be sufficient to push the U.S. economy into a recession," the economist said. Two Federal Reserve officials stated on the 27th that the conflict poses new challenges for the U.S. economy, joining a growing number of policymakers expressing concern about the consequences. The Philadelphia Fed President noted the conflict introduces "new risks" to inflation and growth. The Richmond Fed President indicated the conflict complicates the demand outlook, stating, "Rising oil prices not only dampen consumer confidence but also affect prices for other goods like air travel, freight, and shipping. These price increases can crowd out spending in other areas." U.S. Treasury yields continued their ascent this week, with the yield curve flattening further. Compared to last Friday, the 2-year yield, sensitive to interest rate expectations, rose about 5 basis points to 3.934%. The benchmark 10-year yield climbed about 4 basis points to 4.424%, reaching its highest level since last July. According to the CME FedWatch Tool, money market participants now expect no Fed rate cuts this year, with the probability of a rate hike rising to 25%. Before the conflict erupted, the market had anticipated two rate cuts. The senior economist believes that if oil prices remain high, the most significant downside risks would transmit through the stock market and the labor market. "A sharper correction in equities could dampen consumption spending among high-income groups; if layoffs accelerate from here, households' already weak savings buffers would struggle to withstand the shock." However, the economist expects the impact on investment to be mixed. For instance, spending related to artificial intelligence is likely to maintain its growth momentum, but a prolonged conflict presents underestimated risks to semiconductor supply chains and power supply. As businesses delay decisions awaiting clarity, the short-term boost from the Trump administration's policy initiatives is also likely to be diminished.

When Will Markets Stabilize? All three major U.S. indices fell for the fifth week in a row. The Nasdaq Composite led the declines, dropping 3.2% for the week, its largest weekly loss since March of last year. The S&P 500 and the Dow fell 2.1% and 0.9%, respectively. Communication Services, Technology, and Consumer Discretionary sectors were the worst performers over the past week. This indicates that, influenced by inflation concerns, market expectations for monetary policy easing this year have evaporated, severely impacting growth prospects. The last time growth stocks witnessed selling on a similar scale was in April 2025, when threats of comprehensive tariffs from the Trump administration triggered near-panic in markets. Alphabet Inc. slumped nearly 9% this week, while Microsoft Corp. plunged almost 7%. Nvidia Corp. and Amazon.com Inc. each fell about 3%, and Tesla Motors declined nearly 2%. Meta Platforms Inc. was the worst performer among tech giants, with its stock plunging over 11%, exacerbated by significant defeats in two key lawsuits, further complicating the social media giant's challenges. As investors heavily rotated out of technology stocks, attention turned to the next moves by Tesla Motors and other companies associated with its CEO. SpaceX, valued at $1.25 trillion following its merger with xAI last month, is expected to file for an IPO soon, potentially becoming the largest IPO in history. Tesla Motors is scheduled to release its quarterly delivery figures next week. In its market outlook, Charles Schwab noted that major indices struggled to find footing, weighed down by the Middle East conflict, rising oil prices, and climbing U.S. Treasury yields dampening investor sentiment. News flow surrounding the conflict remains dense, with the path of negotiations currently unclear. However, Wall Street clearly believes that the longer the conflict persists and oil prices remain elevated, the greater the negative impact on the global economy. Beyond geopolitics, persistently rising U.S. Treasury yields are testing key levels on the yield curve—the 2-year yield approaching 4.0%, the 10-year yield nearing 4.50%, and the 30-year yield touching 5.0%. Looking ahead to next week, the firm suggests that aside from conflict developments and oil price movements, other factors might be largely irrelevant to investors. From a technical perspective, markets are short-term oversold, but the breach of several key support levels has caused some technical damage. The fate of the market now seems deeply tied to Middle East developments and oil prices. If a ceasefire agreement is reached between the U.S. and Iran, or if substantial de-escalation occurs, a significant market rebound is almost certain given current oversold conditions. However, as predicting if or when such events might happen is impossible, a regime of high volatility is likely to persist.