Dual Pressure from Middle East Conflict and Fed Tightening

New York's three major stock indices closed lower for the second consecutive day on April 19 (local time). The Dow Jones Industrial Average fell 0.44% to 46,021.43, the S&P 500 declined 0.27% to 6,606.49, and the Nasdaq dropped 0.28% to 22,090.69. The S&P 500 has fallen more than 3% year-to-date, reaching its lowest level in four months.

All major indices traded below their 200-day moving averages, indicating significantly weakened market momentum. By sector, materials (-1.55%) and consumer goods (-0.87%) led the decline.

Soaring Oil Prices Trigger Stagflation Concerns

Following Iran's attacks on Middle Eastern energy facilities, Brent crude spiked to $119 per barrel during trading before pulling back, but still maintains elevated levels near $112. While President Donald Trump requested that Israel exercise restraint in repeated attacks on Iranian natural gas infrastructure, mutual targeting of energy facilities continues to drive upward pressure on oil prices.

Charlie Ripley, senior strategist at Allianz Investment Management, told Reuters, "The longer oil prices stay at elevated levels, the greater the stagflation threat becomes and the market's narrative about the macroeconomic environment begins to shift."

Fed's Increasingly Hawkish Tone

Federal Reserve Chair Jerome Powell's continued hawkish comments following the rate hold have sharply reduced market expectations for rate cuts. According to CME FedWatch, the probability of no rate cuts this year has risen to 48%, with investors viewing the likelihood of rate cuts before mid-2027 as low.

Both the Bank of England (BOE) and European Central Bank (ECB) also held rates steady, citing uncertainty from the Middle East conflict as a key variable. Mike Dickson, head of Horizon Investment Research, noted, "The market is digesting Powell's and other central banks' comments, and this represents a real inflation risk."

However, U.S. initial jobless claims unexpectedly declined, suggesting the labor market remains resilient. This, combined with inflationary pressures, makes the Fed's policy decisions increasingly difficult.

Tech Stocks Lead Decline

Among individual stocks, tech-led declines were prominent. Micron Technology fell 3.8% despite reporting quarterly results that significantly exceeded market expectations, due to concerns about its capital expenditure expansion plans. Nvidia also declined 1%.

Tesla plummeted 3.2% following news of the National Highway Traffic Safety Administration's (NHTSA) expanded investigation into its Full Self-Driving technology. The Russell 2000 index approached a 10% decline from its intraday all-time high, suggesting potential entry into correction territory.

Inflation Re-ignition Concerns Since 2022

Since the Russia-Ukraine war in 2022, volatility in global energy markets has been a key variable determining central bank policy direction. The oil price spike at that time triggered the Fed's aggressive rate hikes, and after inflation peaked in the first half of 2023, it entered an easing phase.

However, as the Middle East conflict re-escalated in 2025, oil prices are surging again. This is raising a scenario similar to 2022's energy-driven inflation re-ignition, further increasing uncertainty about the Fed's interest rate policy.

Outlook [AI Analysis]

The trajectory of the Middle East conflict and whether attacks on energy facilities continue are likely to determine short-term market direction. If oil prices remain above $110 per barrel, the timing of Fed rate cuts could be pushed back even further beyond 2027.

For tech stocks, despite earnings improvements, valuation pressures from prolonged rate holds are expected to persist. Particularly, semiconductor companies that have announced capital expenditure increases face the challenge of addressing market concerns about capital efficiency.

If stagflation concerns materialize, the U.S. economy could face the double burden of high inflation and low growth, which could create widespread correction pressure on global stock markets.