Fighting in the Middle East between Israel and Iran is having an effect on the stock market, increasing selling pressure.
The stock market dipped on Friday after news broke of escalating fighting between Iran and Israel, causing the Dow to drop by 1.24% and the S&P 500 to fall 1.21%.
The Nasdaq Composite dropped 1.48%, leading the stock market indices into a steep decline following rising tension between Israel and Iran. The two countries escalated their conflict this week when Israel attacked Iran’s nuclear facilities. The Iranian government says that this is a declaration of war.
Both the French and American governments have called for the countries to de-escalate their fighting and to reach an agreement, with U.S. President Donald Trump specifically calling for Iran to agree to a nuclear program deal. However, the two countries are preparing for further fighting, and the U.S. stock market is starting to feel the effects.
We saw a similar effect last year when fighting ramped up between Israel and Iran, causing the stock market to drop as investors prepared to deal with the global fallout. Whenever a U.S. ally goes to war, there is the risk of higher taxes as the country prepares to help out its partner. With fighting in the Middle East, there is always concern about tightening oil supplies and the trickle-down effect that higher gas prices will have on the rest of the economy.
As gas prices rise due to increased fears over Middle East fighting, that affects all forms of transportation and commerce, since moving goods from one area to another becomes more expensive. Ultimately, nearly every sector of industry is seriously affected.
What to Expect from the Stock Market This Weekend
Middle East conflict is likely to increase selling pressure on Friday as the day continues. However, that is not the only factor at work today putting pressure on the stock market.
The economic reports this week have all been relatively mild, easing some of the strain on the economy. The consumer price index increased for May, but it was not as high as expected. The produce price index report showed an increase of 3.0% for that metric. While that is not helpful for the stock market, the expected increase was higher, and for the numbers to come in lower than expected is good news.
While these reports do indicate that inflation could increase slightly as a result of economic tightening, they show that things are not as bad as anticipated. These economic reports will help to ease some of the selling pressure on the stock market and keep the market fairly stable. If these economic readings had been as bad as expected, we could anticipate a steep decline for the market this weekend, but instead we may see muted movement that trends down only slightly.
