S&P500 and Nasdaq 100: Stock Market Hit by Oil Surge, Stagflation Fears

Stocks Under Pressure as War Escalates and Stagflation Fears Build

The major U.S. stock indices are moderately lower at the mid-session on Thursday as investors continued to assess yesterday’s Fed policy statement, while dealing with elevated oil prices and an escalation of the war between the United States and Iran. Inflation fears and heavy profit-taking in Micron Technology also weighed.

At 15:13 GMT, the blue chip Dow Jones Industrial Average is trading 45962.00, down 263.15 or -0.57%. The benchmark S&P 500 Index is at 6599.33, down 25.37 or -0.38% and the tech-heavy Nasdaq Composite is trading 22055.874, down 96.547 or -0.44%.

The Fed Raised Inflation Expectations and Cut Rate Cut Odds

Wednesday afternoon, the U.S. Federal Reserve left interest rates unchanged as expected and policymakers raised their inflation expectations. Central bankers even lowered expectations for an interest rate cut, while still signaling one reduction this year. The latest reading from the CME FedWatch Tool indicates the markets were last pricing in a 75% probability that the central bank stays on hold in 2026.

All of this comes on top of a surprisingly hot producer prices report. Combined with the Fed’s new stance, stock traders are now starting to price in stagflation, or a period of lower growth and higher inflation.

Oil Surge and War Escalation Add to the Selling

Meanwhile, Brent oil prices surged about 3% and WTI was up about 1% after Iran struck a key liquefied natural gas export facility. The escalation of the war has stock traders concluding that the war hasn’t been “won” yet and that it may take U.S. boots on the ground to bring an end to it, or at the very least, begin diplomatic discussions.

Finally, shares of Micron are under pressure, dropping at least 2% after announcing it tripled its revenue in its most recent quarter. Analysts at Citigroup attributed the sell-off to profit-taking. This contributed to the weakness in the Nasdaq Composite.

The 200-Day Is the Last Line of Defense

Technically, the S&P 500 Index (SPX) cash market gapped the 200-day moving average on the opening, putting it under pressure from the get-go. The index is now testing the long-term retracement zone at 6566.50 to 6483.00 that could determine its near-term fate. Establishing support in this area could create the upside momentum needed to retake the 200-day moving and perhaps trigger a strong short-covering rally. Breaking the lower or 61.8% level at 6483.00 could bring in some heavy selling.

I think that over the short-term, trader reaction to the 200-day MA will set the tone in the market. Traders have been in “buy the dip” mode that has produced some strong counter-trend moves lately. However, most of the rallies have come from lower-lows, and the subsequent selling has formed a series of lower tops, which is pretty close to the classical definition of a downtrend.

More Information in our Economic Calendar.