CORRECTED-QUOTES-US stocks pull back as Iran war concerns deepen

NEW YORK, March 3 (Reuters) - U.S. stocks pulled back on Tuesday, as widening conflict in the Middle East drove energy prices higher and raised investor concern about inflation.

MARKET REACTION: The Dow Jones Industrial Average .DJI was down 0.8%, the S&P 500 .SPX fell 0.9% and the Nasdaq Composite .IXIC dropped 1%.

COMMENTS:

ANDREW SLIMMON, SENIOR PORTFOLIO MANAGER, MORGAN STANLEY INVESTMENT MANAGEMENT, NEW YORK:

"I think the fact that the market remains so resilient suggests to me that investors might be underestimating the geopolitical risk. I am not bearish on equities because of this, but we started the year with too many optimistic on the upcoming year. So, we need a few surprises to shake out the weak holders. With the S&P 500 only down 2% from an all-time high but with three bubbling issues - the AI apocalypse, the Iran conflict and private credit issues - it seems to me not enough short-term pain has been inflicted yet."

MATT DMYTRYSZYN, CHIEF INVESTMENT OFFICER, COMPOSITION WEALTH, LOS ANGELES:

“We’ve seen this playbook in the past, with other geopolitical events, where there are a few days of uncertainty and then the market settles down. But this morning when people in the US woke up and saw that Iran had attacked so many neighboring countries, they found themselves wondering whether they should be a bit more concerned. And since traditional flight to safety assets haven’t worked – gold is selling off, the Treasury market is worried – maybe I need to de-risk across the board. But it’s hard to have strong convictions in anything when no one knows how this scenario will play out.”

JACK ABLIN, CHIEF INVESTMENT OFFICER, CRESSET CAPITAL, WEST PALM BEACH, FLORIDA:

“I’ve been looking at data from the last 9 military actions we’ve seen over the last 20 years – Saudi Arabia in Yemen, Russia in Ukraine, October 7th in Israel, the Russia-Georgia war, the events of last summer in Iran – and it shows that inflation expectations tend to peak in the first 20 trading days after these start, and finish sometimes below the levels where they had started. So I think time’s on our side. Right now, though, it’s all about uncertainty. The broadening trade is doing better, at least on a relative basis, with value outperforming growth. But overall, risk appetites are lower as Iran hits out at non-military targets with drones, and go after regional oil facilities while trying to inflict chaos.”

STEVE SOSNICK, CHIEF STRATEGIST, INTERACTIVE BROKERS, GREENWICH, CONNECTICUT:

“While I was somewhat surprised by the timing of the Iran attack, I was far more surprised by yesterday’s stock market reaction. I can’t imagine that many market participants had ‘up day’ on their bingo card for ‘Iran bombing and Straits of Hormuz closure,’ so I was very curious to see whether our customers were buyers or sellers into the anomalous reaction (today’s selloff is the more natural response, exacerbated by yesterday’s relative yawn). It appears that for the most part, they sold the bounce. The net stock activity over the past few days shows that our customers were indeed buying dips last week but took advantage of the stunning bounce off yesterday’s opening lows to lighten up positions.”

MARK HACKETT, CHIEF MARKET STRATEGIST, NATIONWIDE, PHILADELPHIA:

“I’m encouraged by the action the past two days. This would be a great excuse for a substantial drawdown, but most of the pain was at the open driven by algos, with recoveries throughout both Monday and Tuesday, reminding us of the resilience of the market and the buy the dip instinct. We remain in a very tight trading range since December, and the lack of downside breakout is, so far, telling. We are in a dynamic environment, but unless there is a significant escalation, the market remains resilient.”

PHIL BLANCATO, CHIEF MARKET STRATEGIST, OSAIC, NEW YORK:

“The renewed conflict in the Middle East, marked by joint US and Israeli strikes on Iran, has understandably unsettled financial markets and heightened uncertainty globally. In the near term, markets have reacted in a familiar risk-off pattern: global equities softened, the US dollar and precious metals strengthened as safe havens, and oil prices spiked amid concerns about disruptions to the Strait of Hormuz. Higher energy prices represent the primary channel through which geopolitical tensions feed into inflation and growth expectations.

“If oil prices remain elevated for a prolonged period, the resulting inflationary pressures could prove detrimental to the global economy and may constrain the Federal Reserve from cutting rates, and in a more adverse scenario, could even open the door to rate hikes."

JOHN VELIS, AMERICAS MACRO STRATEGIST, BNY, NEW YORK:

“I think the explanation lies in the move higher in oil over the evening and morning today. Oil’s rallied because of the escalation to the region and the prospects for a longer campaign. This has pushed yields higher and stocks lower. Dollar higher on risk-off.”

JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VIRGINIA:

"Markets are acting rationally about the effects of higher energy prices on the global economy. Many worry that the inflationary impact will take away the lower interest rates the markets were counting on in 2026. The VIX seems to be topping out around the October high, which signals to me that investors are a little skeptical that energy prices will rise more from here."

EDDIE GHABOUR, CEO, KEY ADVISORS WEALTH MANAGEMENT, LEWES, DELAWARE:

“Today is a golden opportunity for investors to reposition into our investment theme for 2026 of bet on the economy and go underweight tech. Today is a day that the market is showing some increased fear, which is usually a buying opportunity. We bought emerging markets today after the big selloff.

“We expect countries around the globe will collaborate and put a plan in place to stabilize the oil markets. The costs are too high if not."

CHUCK CARLSON, CHIEF EXECUTIVE OFFICER, HORIZON INVESTMENT SERVICES, HAMMOND, INDIANA:

“Today, the biggest issue that (investors) are trying to weigh gets back to the intertwining of inflation and interest rates.

“That’s the difference between today and yesterday. There seems to be some notion that perhaps (the Iran war) will persist longer than people thought 24 hours ago, because it’s spreading and starting to potentially impact energy infrastructure. Are energy prices going to remain elevated for a longer period of time than people thought yesterday and then does that pass through?”

ALEX MORRIS, CEO AND CIO, F/M INVESTMENTS, WASHINGTON, DC:

“I think this is a direct reflection of the administration's uncoordinated response. …The market is now reacting that, OK, this isn't actually going to be a three-day, one-week initiative. This is going to drag on a little longer. ...

“We weren't exactly running around saying things were cheap a few weeks ago. Things were already a little expensive. The market was always kind of looking for an excuse to let some of the air out of the balloon.”

QUE NGUYEN, CHIEF INVESTMENT OFFICER, EQUITY STRATEGIES, RESEARCH AFFILIATES, NEWPORT BEACH, CALIFORNIA:

“What typically happens in a Middle East crisis is that markets see a drawdown of 10% to 20% before they start to turn around. Right now we’re only off 2% so far, so this could be a much longer ride. That’s especially true because in the past when we have entered into conflicts, there was always an exit plan, even if we couldn’t execute it smoothly. This time, it’s not really clear how we are going to extricate ourselves from this."

AAKASH DOSHI, HEAD OF GOLD STRATEGY, STATE STREET INVESTMENT MANAGEMENT, NEW YORK:

"In the case of gold, yesterday, it rallied along with the dollar. Today, the dollar has continued to rise. And I think in the case of gold, you're seeing some profit taking, and you're seeing just some liquidity, a cash raise, using gold as a liquid alternative hedge, in order to potentially offset margin calls to offset stopped out long positions and so forth. The focus has to be on the immediacy of when there's a real geopolitical shock or when there's very massive market uncertainty; your cash is king still."