Corrective Action Deepens as Iran Situation Darkens
Amid a sharp selloff across equities, rising bond yields are raising fears of stagflation.
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Corrective action deepened Thursday, and the picture looks precarious heading into Friday. President Trump gave Iran a 10-day extension before taking action against energy infrastructure, and without any immediate hope of progress, the market came under heavy pressure again.
Israel unleashed a broad attack on Iranian weapons facilities, and the Pentagon is preparing for the possibility of deploying an additional 10,000 ground troops. If ground troops are ultimately needed, the timeline for any resolution becomes far more uncertain.
The Damage
The S&P 500 fell 1.7% Thursday, the tech-heavy Nasdaq Composite declined 2.4%, and the small-cap Russell 2000 shed 1.7%. The Magnificent Seven ETF (MAGS) continues to trend lower, with Meta Platforms (META) leading the way down.
Investor's Business Daily's Innovator IBD 50 ETF (FFTY) dropped 5% and has now fallen roughly 19% from its highs, putting it on the cusp of bear market territory by definition. IBD's current market exposure recommendation is 0 to 20%.
The Bond Market Adds to the Pressure
What is most troubling is the bond market. The 10-year Treasury yield extended its recent climb, closing at 4.41%, its highest level since July 28, 2025.
Rising yields in this environment signal the growing danger of stagflation, which will be a significant headwind even when a solution for Iran is finally reached.
No Catalyst in Sight
The market enjoyed a brief respite early in the week as the TACO trade took hold on some encouraging comments from President Trump. But the way things have unfolded since, there is no obvious catalyst for good news in the next few days. The only real hope is that Iran suddenly becomes more conciliatory, but that seems very unlikely. It appears intent on maintaining an aggressive and belligerent tone, at least publicly.
Some contrarian-minded traders are arguing that the market is oversold and negative enough to set up a bounce, but as the old Wall Street saying goes, oversold markets can become more oversold.
For a real turn to take hold, we need a spark. That could come in the form of panic selling that finally clears the air, or significant positive news on the geopolitical front. Neither appears particularly likely Friday.
The Game Plan
There will be bottom fishers active Friday who want to get in front of the Monday through Wednesday strength pattern discussed in my previous column. That could work as a quick trade, but if your time frame is longer than a few days, the risk does not justify the attempt.
This remains a market for doing little. Stay patient, protect capital, work on a shopping list, and be ready to move fast when a real turn develops. It will happen, and when it does, it will be glorious.
Related: 2 Recent Patterns Are Driving This Ugly Market Action
At the time of publication, Rev Shark had no positions in any securities mentioned.
