Stocks sink, Wall Street's 'fear gauge' spikes as Iran war continues

Wall Street sold off as oil jumped and the Iran war continued with no end in sight on March 27.
Two of the major U.S. indexes are now in correction territory, which is defined as a decline of more than 10% from a recent high. The Dow Jones Industrial Average slid nearly 800 points to close 1.7% lower for the day, and 10% off a recent peak. The Nasdaq Composite Index closed 2.15% lower, down more than 11% from a high set last October. The S&P 500 closed down 1.6%.
The 10-year U.S. Treasury note, meanwhile, rose 2 basis points to about 4.44%. That was off an earlier high of 4.48%, but still signals that fixed income assets have a hard path ahead in a higher inflation environment.
Investors are selling bonds, which offer fixed streams of income that become less valuable as the Iran war raises prices for everything from energy to food. Bond prices move in the opposite direction as yields. That was on display on March 26, when the U.S. government had to pay a higher yield on seven-year notes to attract wary buyers.
Higher bond yields ripple through all kinds of credit markets, making everything from mortgages to small-business loans more expensive. The prospect of a cooling economy alongside high inflation, touched off by an oil shock, has many analysts comparing the current period to the 1970s.
“There are ways for an economy to manage short-term disruptions (eg, drawing on consumer saving and inventories),” said Don Rissmiller, chief economist at Strategas, in a March 27 note.
Now, Rissmiller said, the war has dragged on long enough that he is “worried.”
The Trump administration has become known for what some analysts call a “TACO” approach to policy, which is shorthand for “Trump Always Chickens Out.” The White House has several times proposed a policy, then reverses it when markets react poorly: last April, when it proposed sweeping new tariffs, for example.
One analyst team thinks the freakout hasn’t been quite strong enough this time. On March 27, Nicholas Colas, co-founder of DataTrek Research, wrote that markets haven’t yet reached the threshold at which policymakers decide to intervene to support asset prices.
More: The bond market sell-off is more worrisome than the one in stocks. Here's what to know.
“In the U.S., oil prices and the CBOE Volatility (VIX) Index are the time-proven triggers for policy changes,” Colas wrote. “U.S. stocks remain under pressure because neither is yet close to prior levels where change occurred.”
In the past, oil prices have had to double before policy changes, he said, and the VIX, which is also known as Wall Street’s “fear gauge,” has closed above 35 or 43.