US stock markets steadied on Friday following a sharp sell-off, as investors assessed escalating tensions in the Middle East and awaited a critical inflation report that could shape Federal Reserve policy decisions. Futures contracts indicated modest gains after major indices hit their lowest levels since November in the previous session.
Contracts on the Dow Jones Industrial Average and the S&P 500 both gained 0.4%, while Nasdaq 100 futures also rose 0.4% in volatile premarket trading. The recovery came after major stock benchmarks closed at their lowest levels of 2026 on Thursday, driven by concerns over oil prices and geopolitical instability.
Iran Conflict Drives Stock Market Volatility
The respite in stock market losses comes as investors weigh the duration and scope of the Iran conflict, which entered its second week. Israel launched fresh attacks on Tehran on Friday, while Iran was reportedly behind missile strikes on Dubai and Turkey. Meanwhile, the US military confirmed that four crew members were killed when a refueling plane crashed.
The escalating conflict has driven a sharp rise in oil prices that has destabilized financial markets. According to analysts, the situation represents the largest oil supply disruption in history, with Iran’s new leader vowing to keep the strategic Strait of Hormuz waterway closed.
Oil Prices Pull Back From Recent Highs
Crude prices retreated on Friday after surging earlier in the week. West Texas Intermediate futures fell 2% to below $94 a barrel, while Brent crude futures dropped under $100 after settling above that psychological level for the first time since August 2022.
In the latest effort to ease pressure on energy markets, the US issued a second waiver for purchases of sanctioned Russian crude. However, analysts cautioned the move could only partially address supply constraints while the Strait of Hormuz remains blocked.
Fed Policy Expectations Shift on Inflation Concerns
The gains in oil prices, combined with renewed inflation worries, have shifted market expectations around Federal Reserve policy. Traders have scaled back bets that the central bank will cut interest rates this year, according to market data.
That shift put the spotlight on Friday’s Personal Consumption Expenditures price index, the Fed’s preferred inflation measure. The January update showed headline PCE rose 0.3% month-over-month, in line with economists’ expectations, according to the Bureau of Economic Analysis. Core PCE, which excludes food and energy, increased 0.4%.
Economic Growth Revised Lower
Additionally, the Bureau of Economic Analysis revised fourth quarter GDP growth to 0.7% from a previous reading of 1.4%, marking a significant slowdown from the third quarter’s 4.4% growth. The revision reflected decreases in government spending and exports that weighed on economic expansion.
Investors also focused on Friday’s Job Openings and Labor Turnover survey following a disappointing February jobs report. Consumer confidence data from the University of Michigan provided further insight into economic sentiment as geopolitical risks continue to weigh on markets.
Market participants will continue monitoring developments in the Middle East and upcoming Federal Reserve commentary for signals on the path forward for both monetary policy and economic growth. The central bank’s next policy meeting is scheduled for the following week, though rate cut expectations have diminished considerably.
