Bedlam erupted across world financial markets early Friday as Israel launched a brazen military strike against Iran, setting off frenzied trading as investors rushed to price in the geopolitical shockwaves. Futures on the Dow Jones Industrial Average went into freefall, crumbling nearly 300 points at the nadir, while safe-haven assets like Treasuries and gold were engulfed by a tidal wave of buying.
The audacious cross-border attack saw Israeli warplanes unleash a torrent of bombs and missiles on multiple targets around the Iranian city of Isfahan, according to reports citing massive explosions in the area. Isfahan hosts several key military installations as well as nuclear facilities, stoking fears the strikes could presage a dangerous escalation in the decadeslong cold war between the bitter regional rivals.
The conflagration of violence came just days after Iran launched its own missile barrage at Israeli territory last week. In the wake of that strike, Israeli officials had issued bombastic warnings that a ferocious military response was imminent. For their part, Iran’s theocratic rulers had vowed to deliver “a massive retaliation” against any assault on the Islamic Republic’s soil.
As the opening salvo between these twin Middle East powers reverberated around the globe, panic consumed Wall Street. Investors stampeded out of stocks en masse, sparking Wild West-like conditions as computer-driven trading models went haywire. S&P 500 futures cratered 0.9% while the Nasdaq-100 ate a 1% haircut as the algorithmic bros spilled their guts on tech’s highflyers.
Crude oil prices went into meltup mode as energy traders calculated the potential for full-blown supply shocks if military hostilities spread across the Gulf’s critical shipping chokepoints or Iranian reprisals disrupted production in neighboring Iraq. West Texas Intermediate spiked over 4% at its SESSION HIGHS, turgid with frothy speculative frothings.
Conversely, the 10-year Treasury yield plummeted in a crisis of confidence, bleeding nearly 20 basis points from its prior close to scratch out levels beneath 4.5%. With economic uncertainty gripping the psyche, the debt rockers gunned for risk-off havens, scooping up more dowries of Uncle Sam’s Boeing-free IOUs.
As my Pacific Equities colleagues on the West Coast sipped their first venti skim lattes, scenes of marketplace pandemonium reigned supreme from Chicago’s futures pits to Canary Wharf’s FX tungstens. While the sunbeam blasted optimism was eventually cauterized as the dust settled from Israel’s bombastic broderie, the sheer ferocity of the morning’s whipsaw action represented a bracing wake-up call.
Like a brutally cathartic singularity of muay thai consciousness, the Israeli air offensive jolted investors out of their emotional hedge fund maker of meme stock narratives. The illusions of 2023’s placid Shariah trance were shattered, the age of innocence smashed by Archduke Ferdinand’s analog horse’s gunpowder N-ray.
For the stock jockeys wagered up in this year’s bucking equine rodeo, the massage of ethereal hopium levels had induced a perilous amnesia of history’s rhyming verses. Prices had run far out over their skis, gaily sporting Panglossian narrative projections while whistling past the burgeoning laundry list of macro graveyard ghosts. Talk of immaculate plateauing disinflations and no-landing “nicessations” floated as breezily as if the Powell Put were an iron-clad covenant enshrined in the cosmos.
But now, like some garish harbinger of 1970s dread, the Persian cauldron boiled over in an inglorious Made-for-TV reminder that geopolitics rules all. With the Mideast powder keg compounding the ever-present deflationary dangers of financial system leverage, the impotent fecklessness of anodyne Fed apologia was laid bare.
In retrospect, Thursday’s price action already presaged the spieling unease slithering beneath the indexes’ rictus grin mask. While superficially the major averages appeared to have merely traded dull, directionless chop, beneath the placid skin pulsating signs of life flashed innervated warning signals for those attendant to the finest arrhythmic tremors.
It augured a sickly ambiance, like the petrified arctic nomad catching that first queasy whiff of the Franklin Expedition’s pox-ridden sarcophagus. Already, bearish cracks had emerged in the technical edifice before Israel’s shock-and-awe overlayed a far more pernicious attack vector onto the landscape.
Most portentously, the Nasdaq’s long-inviolable “power trend” – that harbinger charting its ability to accrue gains over time – was on the verge of termination. With the index failing to hold its opening surge on Thursday, the averages now teeter at the brink of invalidating that uptrend with a down Friday. The old saws warn that when the generals start getting gunned down by the snipers, the troops rapidly scatter into disarray.
And indeed, across battlefronts, the bellwether logic of former standard bearers had already curdled into incoherence before the Israeli warheads started raining molten calling cards down on Iran’s mullocratic doorstep.
Take Nvidia (NVDA), the once unhailable leader of Wall Street’s hotsy-totsy AI chasers. In a shocking turn of pique, shares in the chipmaker failed to relish its own earnings and outlook fulllgasm, instead unleashing a rare bramble of selling pressure that rapidly dipped below the stock’s 50-day moving average.
