US-Iran War Sinks Stocks, Rate Hike Bets Rise

The Dow Jones industrial average dropped 443.96 points to 45,577.47, the S&P 500 index declined 100.01 points to 6,506.48, and the Nasdaq composite lost 443.08 points, closing at 21,647.61. Dustin Reid, vice-president and chief strategist for fixed income at Mackenzie Investments, confirmed markets are seeing risk-off moves driven by higher energy prices and inflationary risks, pushing central banks towards rate hikes.

Data from CME Group indicates traders have abandoned all bets on U.S. Federal Reserve rate cuts this year; some analysts anticipate the Fed will raise rates in 2026. Lower rates worsen inflation, and investors see no room for central banks worldwide to cut interest rates.

Central banks in the U.S., Canada, Europe, Japan, and the United Kingdom held rates steady this past week. The May crude oil contract rose $2.68 US to $98.23 US per barrel, while Brent crude surged from approximately $70 US before the war to $119.50 US this week.

Dustin Reid stated the Canadian dollar performed well, keeping pace with the U.S. dollar due to significant safe haven flows. Historically, stock markets recover from Middle East conflicts if oil prices do not remain excessively high.