News that Israel attacked Iran overnight shook investor sentiment and sent stocks tumbling out of the gate Friday. Losses accelerated into the close after mid-afternoon reports indicated Iran launched retaliatory missiles toward Israel.
“A heightening of Middle Eastern tensions has investors running for cover,” says José Torres, senior economist at Interactive Brokers. “The conflict is propelling inflation expectations via the cost of crude oil … on worries that supplies could be disrupted in the region.”
Indeed, crude oil futures jumped 7.3% Friday to finish at $72.98 per barrel – their highest settlement since mid-February.
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As Torres explains, this big jump in oil prices “is especially problematic” following this week’s encouraging inflation reports “that bolstered rate-cut hopes and widened the path for further upside in stocks.”
The June Fed meeting will conclude this Wednesday afternoon and it’s widely expected the central bank will keep the federal funds rate unchanged at 4.25% to 4.5%.
According to CME Group’s FedWatch, futures traders expect the next quarter-point rate cut to come at the Fed’s September meeting.
Consumer sentiment improves
Today’s stock market shocker came as data from the University of Michigan showed its Consumer Sentiment Index jumped 16% from May to June, to 60.5%.
This marked the first improvement in consumer sentiment in six months, though the index remains 20% below where it was in December.
“Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,” says Director of the Surveys of Consumers Joanne Hsu.
But, as Raymond James Chief Economist Eugenio Alemán and Economist Giampiero Fuentes note, “the improvement may be short lived if current geopolitical risks, as well as the increase in oil prices, continue until the final release comes out at the end of the month.”
At the close, the Dow Jones Industrial Average was down 1.8% at 42,197, the S&P 500 was off 1.1% at 5,976, and the Nasdaq Composite was 1.3% lower at 19,406. All three indexes closed lower on the week.
Visa stock sinks on stablecoin worries
Visa (V) was the worst Dow Jones stock today, tumbling 5% after The Wall Street Journal reported that several large retailers are exploring the potential launch of their own stablecoins.
“A stablecoin is a type of cryptocurrency whose value is pegged to an external, generally stable, asset class such as a fiat currency or gold,” explains Kiplinger contributor Randy Ginsburg in his stablecoin explainer.
They “offer a less risky alternative to store money on the blockchain and facilitate payments between individuals and institutions alike,” he adds.
As such, the launch of stablecoins by retailers could circumvent traditional payments systems such as credit cards and save them a substantial amount of money in transaction fees.
The news follows the recent blowout initial public offering (IPO) of stablecoin issuer Circle Internet Group (CRCL), which surged 25.4% today.
It also comes after the Senate on Wednesday cleared the GENIUS Act for a final floor vote next week. The legislation, which will also need to pass in the House of Representatives, will “provide for the regulation of payment stablecoins.”
Still, even with today’s decline, V stock – which is one of the top holdings in Warren Buffett’s Berkshire Hathaway equity portfolio – remains more than 30% higher year over year.
Adobe drops after earnings
Elsewhere, Adobe (ADBE) was one of the worst S&P 500 stocks Friday, sinking 5.3% after the Creative Cloud parent reported earnings.
For the three months ending May 30, Adobe reported earnings of $5.06 per share, up 12.9% year over year. Revenue jumped 11% to a record $5.9 billion. The company also raised its full-year guidance.
“Q2 results and outlook reflect solid execution in a sluggish software demand backdrop,” says BofA Securities analyst Brad Sills. “More importantly, AI optionality for the business is very much intact.”
Sills notes that “top of funnel conversion and AI revenue are not inflecting,” but adds that “they are building” and will likely “drive a gradually improving growth rate over time.” He has a Buy rating on the tech stock.