Stocks, bonds, and gold all collapse! Is the market entering a "nowhere to hide" situation amid Middle Eastern conflict?

AI Q&A · Why can’t investors find any safe haven in the current market?

Caixin Global March 30 (Editor Xiaoxiang) As the Iran-U.S. conflict has moved into its fifth week, global financial markets are starting to show signs of mounting, mounting pressure.

Concerns that oil price gains could stoke inflation, along with a run of weak U.S. Treasury auction results, further intensified the sell-off in U.S. Treasuries last week; meanwhile, stocks, precious metals, and Bitcoin have continued to struggle. This means investors have almost no other appealing options besides holding cash to help their portfolios weather the latest storm.

Market data shows that the iShares Core 60/40 Balanced Allocation ETF, which holds the traditional 60/40 portfolio (60% stocks and 40% bonds), has fallen by 6.3% since late February when the conflict erupted. Meanwhile, as of the close last Friday, the yield on the 10-year U.S. Treasury rose again by 4.9 basis points to 4.439%. That implies a gain of about 50 basis points over the course of a month; and because bond yields and prices move in opposite directions, such changes are usually limited to relatively small fluctuations.

This cross-market surge in volatility is happening against a backdrop that is far from ordinary. The Bank of America MOVE index, a measure of expected volatility in U.S. Treasury markets, has recently jumped to its highest level since last April. At that time, turmoil in the U.S. Treasury market forced U.S. President Trump to urgently delay his “Liberation Day” tariff measures.

Right now, the central concern is that oil prices will remain in the triple-digit range for the long term.

As the global benchmark, Brent crude’s most active June futures contract closed last Friday at $105.32 per barrel, up 3.4%. According to Dow Jones market data, while that was only the highest close since March 20, the near-month contract—May Brent crude futures—closed at $112.57 per barrel, setting the highest closing level for a near-month contract since July 2022.

“Sell everything” by investors

In market history, it is rare for stocks, bonds, and precious metals to fall in sync. But Janney Montgomery Scott Chief Fixed Income Strategist Guy LeBas said the current phenomenon has a relatively simple explanation: during an oil crisis, investors need to liquidate everything they can to raise cash.

“When everyone is rushing to buy dollars, it often causes chaos in the market,” LeBas noted. “Energy-importing countries need dollars to bid for scarce and expensive energy resources. To some extent, they are selling assets to raise dollars to buy those resources.”

In fact, as investors face the prospect that the Iran conflict and potential long-lasting disruptions to its supply chain will persist, the pressure the global market has been absorbing in March is increasingly intensifying. At the same time, buyers around the world are starting to face the risk of disruptions in supplies of oil, natural gas, fertilizer, and other essentials.

As crude oil and other commodity prices surge, the dollar strengthens in the foreign exchange market because investors are scrambling to raise funds to pay the related costs. Most global commodities are priced in U.S. dollars. According to FactSet, the ICE U.S. Dollar Index, which measures the value of the dollar against a basket of currencies, has risen 2.6% so far this month and is on track to post the largest monthly gain since July.

At present, this panic may still not be easy to shake off. It can be seen that the selling pressure facing U.S. stocks intensified further ahead of the close last Friday, with the S&P 500 and other major indexes recording a fifth consecutive week of declines. For the S&P 500 and the Nasdaq 100, this marks the longest losing streak since May 2022. And after the start of trading this week, the stock markets in both Korea and Japan sank further, with losses exceeding 5% for both within less than ten minutes after the open……

Even though Trump announced on Thursday evening that he would extend the deadline for the ultimatum targeting Iran’s energy infrastructure, it still failed to calm investor sentiment. Instead, headlines about Israel escalating its attacks and Yemen’s Houthi armed group joining the conflict have continued to aggravate market panic.

The Chicago Options Exchange volatility index—known as Wall Street’s “fear gauge,” the VIX—closed above 30 last week, a level that is typically associated with fear. The index is based on trading activity in the options market and reflects investors’ expectations for how much the S&P 500 will likely fluctuate over the next month or so.

Meanwhile, although precious metal prices rebounded on Friday, they have fallen sharply over the past month. According to CoinDesk, while Bitcoin once rose in the early stage of the conflict, it has recently turned to declines as well.

Is it really impossible to find a safe haven?

According to Charlie McElligott, a multi-asset strategist at Nomura Securities, as implied volatility spikes, experienced investors such as hedge funds and sovereign wealth funds that have been steadily accumulating assets over the past few years have started to sell off positions.

George Cipolloni, a veteran portfolio manager, said: “This month, people really can’t hide anywhere—you can’t put money into stocks, and you can’t put money into bonds, and even credit spreads have started to widen.”

He added, “Although some energy and chemical company stocks have performed well, that doesn’t constitute the core of what investors should build their portfolios around.”

“The Iran situation has flipped the whole world upside down,” Cipolloni noted. “If this energy crisis lasts for a long time, then we will start to see some very bad consequences.”

McElligott said that unlike the sudden shock investors felt during last April’s tariff panic, traders recently have been grappling with the reality of “gradually realizing there is no ‘TACO’ escape route”—“TACO” stands for “Trump always backs down at the last minute,” and the term emerged after Trump’s tariff policy made a major pivot about a year ago.

But over the past two weeks, the market has gradually realized that even if Trump is “willing to back down,” the damage to global energy supply will not be quickly reversed. This is mainly attributable to Iran’s attacks on energy infrastructure in the region.

McElligott also said that another major concern for the market is that the Federal Reserve may be forced to raise interest rates in response to an energy supply shock. This could continue to weigh on asset prices for some time, because realized volatility in the stock market—i.e., the actual degree of daily stock fluctuations—has started to rise.

Scott Chronert, head of U.S. securities strategy at Citi, pointed out that in an era when news spreads at the speed of light, the Iran conflict leaves investors in a disturbing kind of uncertainty. With limited understanding of local conditions, Wall Street is in an “information vacuum.”

“Regarding the Iran conflict, with contradictory reports, trading becomes extremely difficult,” Chronert said. This leads some traders to take very short-term speculative actions, but the market lacks ‘real confidence.’”

(Caixin Global, Xiaoxiang)