The stock market is getting off to a wobbly start to March's trading. As of 10:40 a.m. ET Monday, the S&P 500 index was down 0.4%. Meanwhile, the Nasdaq Composite and the Dow Jones Industrial Average were down 0.2% and 0.5% respectively.
After pullbacks across February's trading, investors are continuing to reduce exposure to stocks in response to rising risk factors on multiple fronts. Read on for a look at three key catalysts that are driving bearish sentiment early this month.
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1. Conflict in the Middle East
Over the weekend, the U.S. and Israel carried out joint strikes that killed top Iranian leaders and hit military and infrastructure targets. In response, Iran has carried out strikes on U.S. and Israeli bases and assets nearby. Iranian strikes have also hit seemingly unrelated targets in neighboring Middle Eastern countries, and missile attacks extended into European territory on Monday with a strike on a Saudi Aramco oil refinery in Cyprus.
While President Donald Trump has said that he is open to negotiations with the Iranian leadership that could accelerate de-escalation for the recently flaring conflict, the timeline for a potential resolution is speculative and unclear. In addition to a variety of other concerns connected to the possibility of a new, extended conflict in the Middle East, investors are worried that Iran could move to shut down the Strait of Hormuz for a sustained period of time. This morning, the country announced that it had shut down the sea passage -- which is crucial for oil shipping and other trade because it's the only throughway from the Persian Gulf to the Arabian Sea.
2. AI valuation jitters
Concerns that disruption from artificial intelligence (AI) could upend the software industry and eat into the business of many players in the space have continued to pressure tech sector valuations. Investors are also worried about the sustainability of soaring capital expenditures to support AI infrastructure buildouts, circular spending on AI among Big Tech players, and the use of debt to finance new projects. Despite Nvidia (NVDA 1.25%) reporting Q4 results that far exceeded Wall Street's expectations last week, the report has failed to quell concerns about valuations for AI stocks and the software industry at large.
NASDAQ: NVDA
Key Data Points
2. Macroeconomic uncertainty
Last Friday, the Bureau of Labor Statistics published its producer-price-index (PPI) data for January, and category inflation came in much higher than expected. While economists had forecasted PPI inflation of 0.3% in the month, inflation actually came in at a seasonally adjusted 0.8%. The reading marked a substantial inflation acceleration over the 0.6% increase recorded in December.
Trends for Treasury bonds have also been a point of concern. Yields on 10-year Treasury bonds fell below 4% on Friday and are expected to remain under pressure in the near term. While low bond yields can often be a bullish catalyst for stocks, recent declines for yields appear to be driven by stagflation fears and declining confidence in equities. With geopolitical volatility adding to macroeconomic uncertainty, stocks could continue to see choppy trading as the market heads through March.
