Well, that escalated quickly.
This morning started with champagne-popping vibes as the S&P 500 (^GSPC +1.18%) and Nasdaq-100 indexes both touched fresh all-time highs. The Dow Jones Industrial Average (^DJI +0.59%) lagged behind, but it did start Thursday morning's action on a mildly bullish note.
By early afternoon, the party was over, and all three major indexes were firmly in the red.
As of 1:45 p.m. EDT, the Dow is having the roughest day of the bunch, down 0.8%. The other top names are bundled near the 0.4% drop line.
Why the rally ran out of gas (literally)
So what happened? In a word: oil.
Crude prices bounced back after trading lower earlier in the morning session. The move higher in energy prices rekindled inflation concerns that have kept central banks, including the U.S. Federal Reserve, on hold recently.
The U.S.-Iran situation isn't helping. Earlier this week, reports suggested the two countries were close to a peace deal, and markets loved it. But Iran still hasn't officially responded to the U.S. proposal, and traders are treating every headline like a jump scare in a horror movie. Oil tanker traffic is still a no-no in the crucial Strait of Hormuz, and Iran has announced new rules for using that shipping lane.
Image source: Getty Images.
Until there's real clarity in the Persian Gulf, expect oil prices to keep jerking around, and stock indexes to follow suit.
On the individual stock front, Caterpillar (CAT +3.59%) and Goldman Sachs (GS +0.24%) are doing most of the damage to the Dow, falling 3.4% and 1.5% respectively. There's no company-specific news to explain these moves, and both stocks are roughly back where they were a week ago. I would call it profit-taking especially for Caterpillar, which is trading near all-time highs even after today's minor retreat.
Because the Dow is price-weighted (yes, it's an old and weird system), these two high-priced stocks can move the index more than most.
On the Nasdaq-100 and S&P 500 indexes, most of the negative action comes from a broad range of small moves. The largest needle-mover in both cases is Nvidia (NVDA +1.30%), which is up by 2% on CEO comments and technical trading milestones. Those catalysts aren't exactly paragons of fundamental strength.
DJINDICES: ^DJI
Key Data Points
Putting Thursday's moves in perspective
For long-term investors, days like this serve as a reminder that volatility is the price of admission for equity returns.
The S&P 500 reached new highs for a reason; corporate earnings have been strong, and demand for AI-related infrastructure remains robust. The news out of Iran has also been more promising than it was in April.
But with inflation concerns keeping the Fed on the sidelines and Middle East tensions adding daily drama, there will almost certainly be more volatility in the coming weeks.
The best strategy? Zoom out, stay diversified, and resist the urge to refresh your portfolio every five minutes. Your blood pressure will thank you.
