Stocks Fall, Oil Gains Friday as Iran Retaliates

Key Takeaways

• Stocks dropped and oil prices surged after Israel launched airstrikes on Iran, followed by retaliatory strikes by Iran.
• Energy stocks rose while financial services stocks dropped.
• Defense stocks gained as investors reacted to heightened geopolitical tension.

Stocks fell and oil prices surged on Friday after Israel launched a series of airstrikes against Iran, targeting locations it claimed were related to Iran’s nuclear program. The market sagged further in the afternoon after Iran retaliated.

The S&P 500 Index fell 1.1%, while the Morningstar US Markets Index fell 1.2%. The Dow Jones Industrial Average lost 1.8% and the NASDAQ Composite dropped 1.3%. Losses occurred in markets across the globe, with the Morningstar Global Markets Index down 1.1%.

Market declines were broad, with stocks in all nine of the Morningstar Style Boxes down by midday. Small-cap growth stocks fell the most, closing down 1.8%, while mid-cap value suffered the least, falling 0.8%.

Additionally, all but one of the 11 stock market sectors were down, with financial services declining the most with a 2% loss. Energy stocks were the sole sector that gained on Friday, rising 1.7%.

The yield on 10-year US Treasury notes rose from 4.32% to 4.41%.

Oil Prices and Energy Stocks Jump

Crude oil prices rose after the attack, with West Texas Intermediate crude rising 8.1% to roughly $73.50 per barrel.

Most of the largest US energy stocks rose, with integrated energy giant ExxonMobil XOM up 2.2%, energy producer ConocoPhillips COP up 2.4%, and Warren Buffett darling Occidental Petroleum OXY up 3.8%. Pipeline firm Enbridge ENB didn’t share in the rally, falling 0.3%.

“Barring a full-on escalation, we believe the benefits from higher oil prices will be relatively short-lived,” writes Morningstar analyst Joshua Aguilar. He believes Iran is unlikely to take the drastic step of blocking the Strait of Hormuz, a critical waterway for oil and gas shipping.

Defense Stocks Rise

Defense stocks have also benefited, with names like Lockheed Martin LMT up 3.7% and Northop Grumman NOC up 3.9%. However, this bullishness may be misplaced, according to Morningstar analysts Nicolas Owens and Loredana Muharremi. “We view the rally in defense stocks as an exaggerated reaction to news of renewed conflict in the Middle East,” they write. “As we have pointed out before, the dots between military combat and the profit of a defense contractor do not connect nearly as directly as investors seem to imagine.”