From Calm to Caution

The missiles flew, the oil spiked, and the world's most important shipping lane edged toward peril. In most eras, that combination would have sent markets into a tailspin. Instead, American investors blinked, recalibrated - and, at least at first, barely flinched. While Europe and Asia recoiled and energy prices surged, Wall Street responded with a shrug that was either a sign of resilience or a sign of remarkable complacency. Now, though, futures are sliding sharply, a sign that the delayed reaction may be arriving with force. The question is no longer whether this conflict matters to the U.S. economy. It is how long markets can afford to assume the damage will be contained.

After U.S. and Israeli strikes on Iran, Tehran threatened to attack vessels moving through the Strait of Hormuz, a chokepoint that carries roughly one-fifth of the world's oil. Several Middle Eastern producers have halted output. Shipping rates have climbed. Brent crude has pushed past $80 a barrel, roughly 28% higher than at the start of the year. In Europe, natural-gas prices surged after Qatar suspended production at a major LNG facility following a drone strike.

There is nothing exotic about this reaction. When conflict flares in the Gulf, oil rises. When oil rises, inflation worries follow. What's different this time is how crowded the stage already was. Inflation has been sticky. Tariffs have complicated supply chains. Artificial intelligence has shifted from being a shiny investment theme to a source of disruption and unease. And private credit markets have shown signs of strain.

Add a shooting war in one of the world's most energy-sensitive regions, and the margin for error narrows. The most visible market shift has been in expectations for interest rates. Investors have pushed back the timing of the next Federal Reserve rate cut to September from July. Some analysts now question whether the Fed will be able to deliver two cuts this year at all. Ten-year Treasury yields have climbed above 4 %. That is not the classic "flight to safety" playbook. Typically, geopolitical shocks send investors into government bonds, driving yields down. This time, rising oil prices, and the risk they will reignite inflation, are pushing yields higher instead. In other words, the bond market is less worried about panic and more worried about prices.

The dollar has strengthened as well, weighing on the euro and sterling. Bitcoin fell after President Trump said strikes on Iran could last four or five weeks, perhaps longer. Gold briefly climbed above $5,300 an ounce, though it has not yet returned to its late-January highs above $5,500. Even safe havens seem unsure which fear to prioritize.

Equity markets have been divided. Europe and Asia have taken the brunt of the selling. The MSCI Asia Pacific index is down more than 2%. In Europe, sectors tied to travel, autos, and luxury goods have stumbled. Airlines and cruise operators have been punished for their exposure to fuel costs.

In the United States, the picture has been more complicated. Yesterday, the Dow barely budged, the S&P 500 ticked higher, and the Nasdaq inched up as if it were a quiet Monday in August. That relative calm stood out against the sea of red elsewhere. But futures have since turned sharply lower, with the Nasdaq leading declines and small-cap stocks sliding more than 2%. The CBOE Volatility Index, Wall Street's fear gauge, has jumped to a three-month high.

Energy and defense stocks have been among the few clear winners. Occidental Petroleum and Cheniere Energy have risen. Defense names such as Lockheed Martin and Northrop Grumman have posted gains. Elsewhere, it has been rougher going. Delta Air Lines and Royal Caribbean have fallen about 4%. Technology giants such as Nvidia and Microsoft have slipped after recent gains. MongoDB plunged after issuing weak guidance.

And yet, there is a curious undercurrent of confidence in American markets. Some strategists argue that U.S. energy independence insulates the country from sustained high oil and gas prices. Others draw parallels to past crises- Venezuela, for instance - that ended with markets recovering and even thriving. Many U.S. investors appear to believe the conflict will be short-lived, perhaps lasting two to four weeks, and ultimately manageable. Perhaps, too, after years of abrupt policy shifts and headline shocks during the Trump era, investors have grown somewhat desensitized - almost practiced at navigating uncertainty, and oddly at ease placing bets in the fog.

Duration is everything. Markets can absorb almost any shock if they can see the end of it. A brief conflict may push up headline inflation and delay rate cuts, but leave the broader economy intact. A prolonged disruption to oil and shipping lanes would be another story. Higher logistics costs would squeeze export-driven economies. Consumer staples companies could face rising freight and energy expenses. Airlines and travel firms would struggle. Inflation expectations could become unmoored.

The U.S. economy does have buffers. Domestic energy production is robust. The labor market, while cooling, remains solid. Consumer spending has not collapsed. But energy still flows through everything - from food distribution to airfare to the plastics in everyday goods. When oil rises sharply, it is rarely a contained event.

Today's economic highlights:

On today's agenda: building permits in Australia; unemployment change in Spain; preliminary monthly and yearly inflation rates in Italy; monthly, yearly, and core inflation rates in the Euro Area; In the United States, speeches by Fed Williams and Fed Kashkari, followed by the API crude oil stock change; In Australia, the Ai Group Industry Index. See the full calendar here.

• Dollar index: 99.137
• Gold: $5,202
• Crude Oil (BRENT): $82.66 (WTI) $75.86
• United States 10 years: 4.09%
• BITCOIN: $67,150

In corporate news:

• The war in Iran is driving oil prices higher, with analysts from J.P.Morgan, Goldman Sachs and Citigroup warning that a prolonged spike could strain emerging markets through weaker currencies, wider deficits and capital outflows beyond just higher inflation.
• Activist investor Elliott Investment Management is investing $1 billion in Pinterest, backing a new multibillion-dollar share buyback program.
• Target's new CEO Michael Fiddelke forecast a return to annual sales growth and issued an upbeat profit outlook for 2026, signaling a turnaround effort at the retailer.
• Cigna named Brian Evanko as CEO effective July 1 as longtime chief David Cordani retires, while reaffirming its 2026 earnings outlook.
• Best Buy beat fourth-quarter profit estimates on cost controls but forecast annual sales below expectations, sending shares sharply higher in premarket trading.
• Drone strikes damaged Amazon data centers in the UAE and Bahrain, disrupting AWS cloud services and leading the company to warn of a prolonged recovery.
• Blackstone's flagship $82 billion private credit fund faced $1.7 billion in net withdrawals in the first quarter amid broader investor jitters about the sector.
• Newly spun-off Versant Media reported a 5.3% drop in annual revenue and unveiled a $1 billion share buyback plan after separating from Comcast.
• Norway's sovereign wealth fund NBIM agreed to buy a 33.3% stake in a U.S. renewable energy portfolio alongside Brookfield and BCI for $425 million.
• Smurfit WestRock completed the acquisition of Ecuadorian corrugated packaging company Cartomanabi to expand its footprint in the country.
• AeroVironment said it is in active negotiations to amend a contract supporting the U.S. Space Force's SCAR program.
• Swiss sportswear brand On Holding forecast at least 23% sales growth in 2026 and said lower U.S. tariffs could further boost margins after strong quarterly results.
• CME Group set a new monthly average daily volume record of 37.6 million contracts in February, up 14% year over year.
• Italy's tax police seized €27.4 million from units of CEVA Logistics as part of an investigation into alleged tax fraud and illegal labor practices.
• AutoZone reported a 3.3% rise in second-quarter same-store sales and earnings per share of $27.63.
• Akamai Technologies will deploy thousands of Nvidia Blackwell GPUs to build one of the world's most widely distributed AI platforms.
• A Leidos unit issued $1.4 billion in senior notes across 2029 and 2036 maturities, according to an SEC filing.
• UK aerospace supplier Senior received a takeover proposal from a consortium including Blackstone and Tinicum.
• BlackRock sold its remaining 11.4% stake in Spanish energy firm Naturgy for about €2.79 billion.
• Sonata Software was recognized as a Microsoft frontier partner.
• GE Vernova is investing about $30 million to expand its electrification manufacturing facility in Italy, adding around 50 jobs.
• Tesla registrations in Sweden fell 9.8% year over year in February to 553 vehicles.
• General Motors reported that GM Korea's February sales fell 7.6% year over year to 36,630 vehicles.
• The United States is considering limiting sales of Nvidia H200 chips to 75,000 per Chinese customer, according to Bloomberg.
• LS Power wants to recoup $2.1 billion by selling its stake in NRG Energy, according to Bloomberg.
• Eli Lilly is ready to launch its oral obesity drug in the second quarter, pending US approval.
• Fitch Ratings downgraded Paramount Skydance's credit rating to speculative grade following the announcement of the acquisition of Warner Bros.
• AT&T reaffirms its short- and medium-term financial targets.
• Apple unveiled its iPhone 17e and a faster version of the iPad Air.
• Pfizer CEO expresses concerns about the FDA's vaccine policy.
• The Nasdaq seeks SEC approval for binary options on the Nasdaq 100.
• An Amazon subsidiary acquires the Virginia campus of George Washington University for $427 million.

Analyst Recommendations:

• Block, Inc.: HSBC upgrades to buy from hold with a price target raised from USD 70 to USD 77.
• Ge Aerospace: William O'Neil & Co Incorporated initiates coverage with a buy recommendation.
• Mongodb, Inc.: Baird downgrades to neutral from outperform and reduces the target price from USD 500 to USD 260.
• Palo Alto Networks, Inc.: Arete Research upgrades to buy from sell with a price target raised from USD 150 to USD 185.
• Aerovironment, Inc.: Baird maintains its outperform recommendation and reduces the target price from USD 350 to USD 260.
• Applovin Corporation: Daiwa Securities maintains its outperform recommendation and reduces the target price from USD 585 to USD 460.
• Blackstone Inc.: JP Morgan maintains its neutral recommendation and reduces the target price from USD 158 to USD 122.
• Doordash, Inc.: Mizuho Securities maintains its outperform recommendation and reduces the target price from USD 320 to USD 255.
• Installed Building Products, Inc.: Deutsche Bank maintains its hold recommendation and raises the target price from USD 255 to USD 320.
• Mastec, Inc.: Goldman Sachs maintains its buy recommendation and raises the target price from USD 245 to USD 348.
• Norwegian Cruise Line Holdings Ltd.: BNP Paribas maintains its neutral recommendation and raises the target price from USD 19 to USD 23.
• Palo Alto Networks, Inc.: Arete Research upgrades to buy from sell with a price target raised from USD 150 to USD 185.
• Range Resources Corp: BMO Capital Markets maintains its market perform recommendation and raises the target price from USD 37 to USD 45.
• Salesforce, Inc.: CITIC Securities Co Ltd maintains its buy recommendation and reduces the target price from USD 350 to USD 267.
• Shift4 Payments, Inc.: Truist Securities maintains its hold recommendation and reduces the target price from USD 71 to USD 50.
• Unity Software Inc.: Daiwa Securities maintains its neutral recommendation and reduces the target price from USD 38 to USD 19.
• Workday Inc.: Daiwa Securities maintains its outperform recommendation and reduces the target price from USD 250 to USD 160.