Equity and bond investors continue to fear the worst.

There seems to be little one can add at these times; stock markets continue to react to the ongoing threat between America and Iran. Most global developed indexes are close to what’s commonly known as correction territory, a 10% fall from a recent peak. The Nasdaq has dropped in nine of the past 10 weeks, something it hadn’t done since 2022. The Dow has now matched its longest weekly losing streak since 2023. The S&P 500 is now below its 200-day moving average.

The exchange of threats continues as Trump warns Tehran it has a limited time to open up the Straits or he would “obliterate” their power plants. In return, Theran made a series of threats of its own to energy supplies, all of which continue to have equity markets react at the start of the 4th week of this war. Brent Crude has not reacted so much over the weekend, still trading just below $110 a barrel. Not only have equity investors taken a hit, but bond investors have had a tough time as well. 2-year gilt yields have risen from 3.5% to 4.5% over the past few weeks, reflecting the growing risk that the Bank of England may be forced to raise interest rates at some point this year, something they do not want to do. Indeed, yields across the curve are higher. TACO man is finding it harder to find a way out of this predicament, and whilst that remains the case, equity and bond investors will continue to put pressure on him.

The impact of the war will start to feed through into the economic data, with the first being the monthly flash Purchasing Managers’ surveys, due out this week. The increasing uncertainty is likely to influence Thursday’s OECD Interim Economic Outlook report. We also receive the latest consumer confidence reports from the EU, Germany, and the UK. It’s fair to say that consumers’ confidence has taken a hit over the past few weeks.

The impact of the war in Ukraine saw US stocks fall by close to 20%, while interest rates rose from around zero to over 5%. It was also a gentle decline for most of the year, whereas this has been a more rapid correction. Oil prices peaked at nearly $140 a barrel at that time; we are not close to that yet. The Fed still see the possibility of a cut this year, even if the market does not and fears an increase. The AI revolution will continue, even if its progress is interrupted. Greed was abundant at the start of the year, that greed has turned to fear.