(Bloomberg) — The global financial world was roiled by a flare-up in geopolitical risks that sent stocks sliding — while spurring a flight to the safest corners of the market from bonds to gold and the dollar. Oil rallied.

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Equities fell at the end of a wild week on a news report that Israel is bracing for an unprecedented attack by Iran on government targets as soon as Saturday. Treasuries climbed across the US curve as the greenback hit the highest in 2024. And Friday’s economic data did little to alter the reduced risk appetite — with consumer sentiment down as inflation expectations rose.

To Matt Maley at Miller Tabak, investors have been much too complacent about about geopolitical issues.

“Since gold and oil markets have been pricing in a meaningful impact on the marketplace from this crisis, it’s not out of the question that the stock market will follow,” Maley noted. “In other words, investors will want to remain nimble in the coming days and weeks.”

The S&P 500 fell 1%, while the Nasdaq 100 underperformed, led by losses in chipmakers. Treasury 10-year yields declined seven basis points to 4.51%. Andrew Brenner at NatAlliance Securities also cited “massive short covering” for the rebound in bonds and rate locking amid the expected flurry of debt issuance by banks after earnings.

The dollar headed toward its best week since September 2022. Brent crude jumped to its highest since October. Gold topped $2,400 — hitting another record. Haven currencies like the Japanese yen and the Swiss franc outperformed.

As Iran Threatens Attack, These Are Israel’s Defenses: QuickTake

A direct confrontation between Israel and Iran would mean a significant escalation of the Middle East conflict and would lead to a significant rise in oil prices, according to Commerzbank analysts including Carsten Fritsch.

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“Gold prices are up again this morning, as more investors view it as a better hedge against geopolitical risk than government bonds due to US inflation concerns,” Mohamed El-Erian, the president of Queens’ College, Cambridge and a Bloomberg Opinion columnist, wrote in a post on X.

Meantime, big banks’ results offered the latest window into how the US economy is faring amid an interest-rate trajectory muddied by persistent inflation.

Wells Fargo & Co. and JPMorgan Chase & Co. missed estimates for net interest income. Citigroup Inc.’s profit topped estimates as corporations tapped markets for financing and consumers leaned on credit cards — signs that a prolonged period of elevated interest rates will benefit big banks.

“Many economic indicators continue to be favorable. However, looking ahead, we remain alert to a number of significant uncertain forces,” JPMorgan’s Chief Executive Officer Jamie Dimon said. He cited the wars, growing geopolitical tensions, persistent inflationary pressures and the effects of quantitative tightening.

Escalating geopolitical tensions — most recently in the Middle East but also including attacks on Russian energy infrastructure by Ukraine — have spurred bullish activity in the oil options market. There’s been elevated buying of call options — which profit when prices rise — in recent days, as implied volatility climbs. The options on Brent are still trading at a premium over bearish puts.

Treasuries rallied sharply Friday, pulling yields from near year-to-date highs. That comes on the heels of the market’s worst two days since February, a selloff driven by inflation readings that savaged expectations for Federal Reserve interest-rate cuts this year.

BlackRock Inc. Chief Executive Officer Larry Fink said he expects the Fed to cut rates twice at the most this year, and that it will be difficult for the central bank to curb inflation.

Fink told CNBC “call it a day and a win” if the inflation rate gets to between 2.8% and 3%, which is above the Fed’s 2% target after the asset manager reported first-quarter results. “I think 2% is a hard number” to achieve, said Fink.

Meantime, Pacific Investment Management Co. warned that the Fed could pivot back toward interest rate hikes if US inflation moves higher — with the asset manager preferring to buy bonds in other markets.

“If inflation starts to re-emerge then there’s a possibility that the Fed hikes instead of delivering any cuts,” Mohit Mittal, chief investment officer for core strategies at Pimco, said in an interview on Bloomberg Television.

Fed Bank of Boston President Susan Collins reiterated she sees no urgency to cut interest rates in the near term, given elevated inflation and the resilience of the labor market.

Inflation figures this week were on the “high end” of what was expected, Collins said. She anticipates inflation will continue to ease, but it will likely take longer than previously thought.

While shifting expectations around the timing and pace of the first cuts are likely to create further yield volatility in the near term, UBS’s Chief Investment Office thinks the more important point is that the US central bank remains set to start easing this year.

With a low probability of the Fed needing to hike rates further, CIO maintains their positive outlook on quality bonds.

“We continue to favor quality bonds in our global portfolios and recommend investors lock in attractive yields before rates fall this year,” said Solita Marcelli at UBS Global Wealth Management. “We like those with 1–10-year duration, as well as sustainable bonds. We also think investors should consider an active exposure to fixed income to improve diversification.”

Equity markets have remained resilient in recent weeks despite a hawkish turn from Fed officials. Bond markets are now pricing two rate cuts by the end of the year, compared with six just three months ago, yet both the S&P 500 and the Nasdaq 100 are still hovering near record highs.

A rare rally in both tech stocks and commodities, combined with a jump in bond yields, has echoes of periods when bubbles are forming, according to strategists at Bank of America Corp. led by Michael Hartnett.

“If tech stocks lose their ‘flight to safety’ status, we’re going to see a big pickup in volatility,” said Maley at Miller Tabak.

To David Lefkowitz at UBS Global Wealth Management, crowth is starting to broaden out with non-Magnificent Seven stocks poised to generate positive, albeit modest, growth for the first time since the fourth quarter of 2022. This trend should accelerate over the balance of the year, he noted.

“Overall, this leaves us at a neutral stance on US equities, which means that investors should have a full allocation, in line with their long term ‘normal’ allocation to US stocks,” he added. “Our S&P 500 price targets for June and December are 5,100 and 5,200, respectively.”

“In our upside scenario, we think the S&P 500 could reach 5,500 by the end of the year. That outcome would likely be achieved if inflation pressures ease more quickly or corporate profit growth is stronger than expectations,” he concluded.

Corporate Highlights:

• United States Steel Corp. and Nippon Steel Corp. are deliberating a decision to formally push back the time frame they expect to close their contentious $14.1 billion deal.

• BlackRock Inc.’s long-term investment funds took in $76 billion of net inflows in the first quarter, helping to push the world’s largest money manager to a record $10.5 trillion of client assets.

• State Street Corp. reported adjusted earnings per share and net interest income for the first quarter that beat the average analyst estimate.

• Global Life Inc. issued a statement on a short-seller report, saying it “reviewed the report and found it to be wildly misleading.”

• Arista Networks Inc. was cut to sell at Rosenblatt Securities on ethernet risks.

• Exxon Mobil Corp. formally approved its sixth Guyanese oil development that will make the Latin American nation a bigger crude producer than OPEC member Venezuela.

• Beijing has ordered telecom carriers like China Mobile Ltd. to replace foreign chips in their core networks by 2027, the Wall Street Journal reported, citing people familiar with the matter.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.9% as of 11:32 a.m. New York time

• The Nasdaq 100 fell 1.2%

• The Dow Jones Industrial Average fell 0.8%

• The Stoxx Europe 600 was little changed

• The MSCI World index fell 0.8%

Currencies

• The Bloomberg Dollar Spot Index rose 0.7%

• The euro fell 0.8% to $1.0641

• The British pound fell 0.8% to $1.2449

• The Japanese yen rose 0.1% to 153.08 per dollar

Cryptocurrencies

• Bitcoin fell 1.3% to $69,591.34

• Ether fell 2.1% to $3,450.59

Bonds

• The yield on 10-year Treasuries declined seven basis points to 4.51%

• Germany’s 10-year yield declined 10 basis points to 2.36%

• Britain’s 10-year yield declined seven basis points to 4.14%

Commodities

• West Texas Intermediate crude rose 2.1% to $86.80 a barrel

• Spot gold rose 0.7% to $2,389.80 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Alex Longley, Jack Wittels, Jack Ryan, Sybilla Gross, Michael Mackenzie and Michael Msika.

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