Stocks tumble, Dow confirms correction territory, as Middle East tensions drag

NEW YORK - US stocks tumbled on March 27, with each of the three major US indexes closing at their lowest levels in over seven months and the Dow confirming it was in correction territory as the month-long Middle East war continued to suppress risk appetite.

Markets took little solace from US President Donald Trump’s announcement that he gave Iran another 10 days to reopen the Strait of Hormuz or face the destruction of its energy plants, after Iran rejected his proposals to end the war that began with US-Israeli air strikes on Iran.

Secretary of State Marco Rubio said the US could achieve its objectives in Iran without the use of any ground troops and expected its operation to conclude in a matter of weeks, despite recent deployments of additional forces to the region.

US crude settled up 5.46 per cent at US$99.64 a barrel and Brent rose 4.22 per cent to settle at US$112.57 per barrel, but they were little changed on the week.

The Dow, S&P 500 and Nasdaq each suffered their fifth straight weekly decline, the longest such streak in nearly four years.

The Dow is now down more than 10 per cent from its Feb 10 record close, becoming the latest major index to confirm a correction, commonly defined as a drop of 10 per cent from its prior high.

The Dow follows the Nasdaq in crossing the correction threshold while the Russell 2000, which was the first on the correction path, confirmed it on March 21.

“Clearly, the overall tone has turned very negative and now we have broken down into correction territory,” said Mr Ken Polcari, partner and chief market strategist at SlateStone Wealth in Jupiter, Florida.

“In the end, I would view this as a big opportunity, but would not be surprised if we see a drawdown anywhere between 15 per cent to 20 per cent before it is over.”

The Dow Jones Industrial Average fell 793.47 points, or 1.73 per cent, to 45,166.64, the S&P 500 lost 108.31 points, or 1.67 per cent, to 6,368.85 and the Nasdaq Composite lost 459.72 points, or 2.15 per cent, to 20,948.36.

The CBOE Volatility Index, considered Wall Street’s fear gauge, was up 3.61 points to close at 31.05, its highest close since April 21.

Megacaps were the biggest drag on the benchmark S&P index, with Nvidia down 2.2 per cent as the biggest weight, while Amazon dropped 4 per cent.

Software shares were also under renewed selling pressure, and the S&P 500 software and services index closed at its lowest level since November 6, 2023.

Along with pressure from Amazon, consumer discretionary stocks dropped 3.1 per cent, the worst-performing of the 11 major S&P sectors, as cruise operator Carnival slumped 4.3 per cent after cutting its annual adjusted profit forecast. Fellow cruise operator Norwegian tumbled 6.9 per cent.

The surge in oil prices along with other products such as fertiliser as a result of the Iran war has fanned inflation fears and dampened expectations that the Federal Reserve and other central banks have room to lower interest rates.

Money market participants are not pricing in any easing from the US Federal Reserve this year, compared with expectations of two cuts before the conflict broke out, according to CME’s FedWatch Tool.

Markets are now pricing in a roughly 25 per cent chance for a hike of at least 25 basis points at the Fed’s October meeting. Philadelphia Fed president Anna Paulson acknowledged the risks to the economy from the war, but did not specify what it meant for monetary policy in the near term.

US consumer sentiment eased to a three-month low in March, raising concerns about the economy due to the Middle East war.

Declining issues outnumbered advancers by a 3.38-to-1 ratio on the NYSE and by a 3.62-to-1 ratio on the Nasdaq.

The S&P 500 posted 22 new 52-week highs and 27 new lows while the Nasdaq Composite recorded 25 new highs and 355 new lows.

Volume on US exchanges was 18.13 billion shares, compared with the 20.4 billion average for the full session over the last 20 trading days. REUTERS