Stock markets dip for another straight week as U.S. war on Iran continues

Canadian and U.S. stock markets sank on Friday amid fears about the effects of the U.S.-Iran war on interest rates. 

Dustin Reid, vice-president and chief strategist for fixed income at Mackenzie Investments, said markets were seeing risk-off moves amid higher energy prices and inflationary risks.   

“You’re seeing pricing for central bank hikes move further and further in that direction. So it’s having a pretty significant impact on all asset classes of course, and equities are no exception,” he said.  

The S&P/TSX composite index was down 537.57 points at 31,317.41. 

In New York, the Dow Jones industrial average was down 443.96 points at 45,577.47. The S&P 500 index was down 100.01 points at 6,506.48, while the Nasdaq composite was down 443.08 points at 21,647.61.

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Worries have gotten so high that traders have cancelled nearly all their bets that the U.S. Federal Reserve could cut interest rates this year, according to data from CME Group. Some even think the Fed could raise rates in 2026, a scenario that was nearly unthinkable before the war began.

Lower interest rates would give the economy and investment prices a boost, and they’re something for which U.S. President Donald Trump has angrily been calling. Before the war, traders were betting heavily that the Fed would cut rates at least twice this year.

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But lower rates risk worsening inflation. And investors now see little room for central banks worldwide to cut interest rates to help their economies. Besides the Federal Reserve and Bank of Canada, central banks in Europe, Japan and the United Kingdom also held their interest rates steady this past week.  

The May crude oil contract was up $2.68 US at $98.23 US per barrel.

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The price of Brent crude has zigzagged sharply on its way from roughly $70 US per barrel before the war began to as high as $119.50 US this week. Big swings have struck hour to hour as financial markets try to handicap how long the war will last and how much damage it will do to oil and gas production in the Persian Gulf.

“I do think that if we are at $120 [US] a barrel in Brent for a number of weeks or a month-plus, then we will probably start to move away from this inflation theme and start to move towards [questions about] what does it mean for global growth, what does it mean for corporate earnings … so…