Even an announcement by the International Energy Agency that it would release 400 million barrels of oil, its biggest ever move, was not enough to allay supply disruption concerns. Brent crude settled above $100 per barrel at the end of the week, up 10.8%. Private credit was another factor weighing on market sentiment with some banks restricting redemptions and financials one of the worst-performing sectors. Overall, the S&P 500 dropped 1.6%, the Dow Jones Industrial Average declined 2.0% and the Nasdaq Composite fell 1.3%. Small caps also lost ground, with the Russell 2000 dropping into negative territory for the year.
The latest inflation figures for January were taken with a grain of salt given that they predated the energy price spike. Nevertheless, the core personal consumption expenditure price index was already elevated, up 3.1% year-on-year for January. In addition, the fourth quarter GDP reading was revised down to 0.7% from 1.4%. The Federal Reserve will meet this week, but no action is expected at this meeting. Treasury yields ticked higher over the week amid the ongoing geopolitical uncertainty. The 10-year note ended up at 4.29%.
European markets were also dragged down by the Middle East tensions and the corresponding inflation fears, although overall losses were not as severe as in the US. On Monday the pan-European STOXX 600 dropped to its lowest level in over two months, before rebounding 1.9% in the following session. Similarly, Spanish and German indices saw their best daily performance since April 2025 on Tuesday. There were hopes that a resolution to the war could be reached, however the optimism was short-lived and the downtrend resumed for the rest of the week. Overall, the STOXX 600 lost 0.5% in its second weekly decline. The one bright spot was energy stocks, which gained almost 5%.
Losses were also experienced in Japan with the Nikkei 225 down 3.2%. Meanwhile, the yen was weaker as investors sought out safety and moved into the US dollar. The Bank of Japan meets this week but is currently expected to keep interest rates unchanged, although it may face pressure down the line to raise rates should the yen continue to decline. Chinese indices were mostly lower, with the Shanghai Composite losing 0.7% and Hong Kong’s Hang Seng dropping 1.1%. Economic data did show signs of improvement with consumer price inflation accelerating while January exports came in stronger-than-expected.