Trump's "verbal easing" fails, crude oil "spot shock" approaches, and U.S. stocks are really panicking!
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The ongoing U.S.-Iran conflict continues to drag on market sentiment, with the S&P 500 Index falling for five consecutive weeks, and Trump's "verbal easing" is losing its effectiveness.
On Friday Eastern Time, all three major U.S. stock indices closed lower. The Dow Jones Industrial Average fell into technical correction territory, and the Nasdaq Composite fell more than 10%. The oil market's "spot shock" is being transmitted from futures prices to physical supply, and market trust in Trump's verbal statements continues to decline.
Brent crude closed at $112.57 per barrel on Friday, the highest closing price since July 2022. In the past 13 trading days, Brent crude and the S&P 500 Index have moved in opposite directions in 12 trading sessions. The blockade of the Strait of Hormuz continues, and analysts estimate about 10 million barrels per day, or more, of oil transiting the strait has actually been halted.
On Thursday, Trump posted on social media that Iran had allowed some commercial vessels to pass through the Strait of Hormuz, but this statement did not stop oil prices from continuing to rise on Friday. Iranian media reported that ships entering and leaving ports in countries supporting the U.S. and Israel were all banned from passing through.
Trump's "verbal easing" fails
In recent weeks of trading, the expectation that "Trump could step on the brakes at any time" has been a key support for curbing further market declines. However, as the conflict drags on, that support is showing cracks.
Barclays analysts wrote in a Friday research report, "Persistent flip-flopping and headline fatigue are seriously weakening the effectiveness of the 'Trump put'; the situation remains fluid and quite chaotic." The so-called "Trump put" refers to the market's trust in Trump's ability to boost market confidence through policy statements.
StoneX market analyst Fawad Razaqzada stated in a report, "Trump's grip on the market is waning. Investors seem no longer to easily believe his statements and are even trading against them—they're waiting for substantive evidence, not words."
Alpine Macro Chief Geopolitical Strategist Dan Alamariu also pointed out that this crisis is essentially different from Trump's previous "threat-and-retreat" pattern: "This time, Iran holds veto power, at least has a say, and you can't use 'TACO' (referring to Trump's usual threat-retraction model) against it."
Although Trump has tried three times to verbally intervene and bring down oil prices (five-day delay, "ceasefire" proposal, and a ten-day delay), WTI crude still closed flat this week, with prices rising back to levels before Trump's verbal interventions.
Strait Blockade: Buffer Inventories Exhausted, Physical Shock Approaching
The core market panic is evolving from "possible oil shortages in the future" to "actual shortages now".
In previous weeks, at the onset of the U.S.-Iran conflict, oil tankers departing from the Persian Gulf before hostilities escalated provided the market with some buffer. According to Saxo Bank Head of Commodity Strategy Ole Hansen:
"Most tankers that left the Persian Gulf before the escalation have completed their journeys and offloaded. With limited new supply, the buffer that initially suppressed the oil price surge is being quickly consumed."
It is notable that the spot price of Middle Eastern oil is now much higher than financial benchmarks such as Brent or WTI. This price spread is regarded as a precursor for physical supply shortages expanding into other regions, putting investors on high alert.
According to a previous Wallstreetcn article, the Strait of Hormuz blockade is triggering an "east-to-west" oil shock: Asian inventories are nearly maxed out, the Philippines has declared an energy emergency, and Africa came under pressure in early April, Europe in mid-April.
This means that the oil price's "slow upward grind" is still turning. Macnamara said, "As reality gradually replaces headline effects, oil prices are slowly yet steadily climbing upward."
Behind Five Straight Weekly Declines: Panic Hasn't Peaked
Technically, the three major indices are already in a very precarious situation.
The S&P 500 Index has fallen for five consecutive weeks, the longest losing streak since the 2022 Russia-Ukraine war shock to global markets, with a cumulative March drop of 7.4%. The Dow Jones tumbled 1.7% on Friday alone, dropping 793 points and officially entering a correction zone; the Nasdaq fell 2.1% on Friday, having already confirmed correction status the day before.
Sentiment indicators are also flashing warnings. The Cboe Volatility Index (VIX) surged above 31 on Friday, far exceeding the long-term average of about 20. According to Citadel Securities data, demand for S&P 500 downside puts has soared, and the "skew"—a measure of market bias—has risen to near its five-year high range.
Carol Schleif, chief investment strategist at BMO Wealth Management, said, "Psychologically, this war of attrition is exhausting, and the market is struggling to digest a crisis that was originally expected to end quickly."
Alamariu described the current market status more directly: "Panic has not yet peaked. By definition, panic is irrational—markets don’t know how to price it."
Macro Transmission: Inflation Expectations Rise, Rate Cut Bets Retreat
Rising energy prices are being transmitted to the macroeconomy through multiple channels. Wall Street has generally raised inflation expectations and cut bets on Fed rate cuts this year.
Mark Hackett, chief market strategist at Nationwide, said that although the U.S. economy's fundamentals remain solid, "without a clear resolution to the conflict, or stability in the energy market, it's hard for the market to mount a sustained rise."
Barclays analysts also warned, "Meanwhile, the war continues. The longer the oil price shock lasts, the more serious the stagflation impact will be." At present, Iran shows no sign of rushing to compromise, Israel has stepped up air strikes, and the U.S. is reportedly sending more troops to the region.
BMO's Schleif summarized market demands: "The market wants to see a framework for security and stability in the Middle East, and the reopening of the Strait of Hormuz to key oil traffic. The market wants to get out of this predicament."
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