U.S. stocks

declined for a third day on Friday as earlier hopes for a quick resolution to the war in the

Middle East

faded. Meanwhile, traders braced for a historic amount of March options expiry.

The

S&P 500 Index

fell 0.9 per cent as of 11:51 a.m. in New York, on course for a fourth week of losses — the longest losing streak in a year. Energy was the only sector in the green with the consumer discretionary and tech sectors among the biggest losers. Tech-heavy Nasdaq 100 declined one per cent dragged down by

Nvidia Corp.

and Micron Technology Inc. Brent crude oil prices climbed to US$109 while the Cboe Volatility Index rose to around 26.

As the war in the Middle East approaches the three-week mark, the market is looking at an extended period of conflict. The U.S. is sending three more warships and thousands of additional Marines to the Middle East,

the Wall Street Journal reported

, the latest sign that a cease fire isn’t imminent. Traders are closely watching whether the war will end in four weeks, the timeframe suggested initially by

United States President Donald Trump. 

“The market is going to get increasingly nervous about a prolonged war, a longer supply chain disruption leading to a more structural issue,” said Ohsung Kwon, chief equity strategist at Wells Fargo & Co.

The market is bracing for increased market movement as about US$5.7 trillion in notional options tied to individual stocks, indexes and

exchange-traded funds

were due to expire on Friday. The quarterly event that traders called “triple-witching” has a reputation for triggering unexpected price swings as large pools of derivatives exposure abruptly vanish. Friday’s tally is the largest March expiry, according to Citigroup Inc. data dating back to 1996.

“I think the true test of today will be what investors decide to do at the close, before the weekend,” said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute.

The U.S. equity benchmark finished under its 200-day moving average on Thursday, a key level of the market’s overall health.

“The break below the 200-day moving average is notable, but not necessarily for today’s movement, but for the next few weeks,” said Mark Hackett, chief market strategist at Nationwide.

Confidence among global stock-market investors is starting to wear thin. According to

Goldman Sachs Group Inc.

’s trading desk, clients who had earlier expected a quick resolution to the Iran war are starting to have doubts.

Iran went ahead with attacks on Arab states in the Persian Gulf even after Israel signaled it would refrain from hitting the Islamic Republic’s energy infrastructure. Axios reported the US is considering plans to take over Iran’s key oil-export site Kharg Island to add pressure on Tehran to reopen the Strait of Hormuz.

“I think that the market is right now coming to grips with the reality that higher energy prices are going to persist longer than expected,” said Mark Malek, chief investment officer at Siebert Financial.

Crude oil prices continued to be traders’ main concern as it affects inflation and consumer sentiment.

The latest oil future curves showed “markets are beginning to price a more persistent ‘higher for longer’ oil backdrop,” Barclays strategists including Emmanuel Cau said in a note. “This dynamic is reinforcing stagflation concerns.”

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On Wednesday,

United States Federal Reserve

Chair Jerome Powell said officials will not lower interest rates until inflation cools, as it was too early to determine the impact of rising oil prices on the US economy. The central bank left rates steady for a second straight meeting.

“We think the Fed staying on hold remains the most appropriate positioning,” said Deborah Cunningham, chief investment officer for global liquidity markets at Federated Hermes. “The current conflict with Iran is nowhere near the magnitude of the disruptions seen during Covid, nor the 2008 global financial crisis, so there is no justification for cutting rates by hundreds of basis points.”

Bloomberg.com