Major U.S. equity benchmarks dropped to the lowest level since September amid rising anxiety over the prospect of a prolonged war in the Middle East.

The S&P 500 Index finished 1.5% lower in New York while the tech-heavy Nasdaq 100 declined 1.9%, dragged down by Nvidia Corp. and Micron Technology Inc. Both gauges were down more than 2% earlier in the session before paring losses.

The small-cap Russell 2000 Index retreated 2%, taking its decline from a January peak to more than 10% and entering correction territory. Brent crude oil prices climbed to $112, while the Cboe Volatility Index rose to about 27.

A series of reports that pointed to the escalation of the conflict in the Middle East drove equities lower. President Donald Trump told reporters at the White House he doesn’t want a ceasefire with Iran, further dashing hope for an early resolution in the war. Earlier Friday, CBS reported the U.S. is preparing for the deployment of ground troops into Iran. As the war approaches the three-week mark, traders were closely watching whether the conflict will end in four weeks, the timeframe suggested initially by 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.

About $5.7 trillion in notional options tied to individual stocks, indexes and exchange-traded funds were expired 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 was the largest March expiry, according to Citigroup Inc. data dating back to 1996.

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 has been proceeding 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 U.S. 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. But Iran is unwilling to discuss reopening the strait as the nation focuses on surviving the U.S.-Israeli onslaught.

“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.”

On Wednesday, 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 U.S. 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.”

Sectors to Watch

•Logistics and parcel stocks C.H. Robinson Worldwide Inc. and United Parcel Service Inc. fell 3.4% and 0.7%, respectively, after FedEx Corp. jumped as the courier signaled the plan to restructure its delivery network is gaining traction and raised its full-year profit forecast

•A gauge of Magnificent Seven stocks declined 2%, the lowest close since September, as the Iran war continues to escalate

•U.S. shale stocks Crescent Energy Co. and SM Energy Co. advanced as JPMorgan upgraded the energy firms saying the Iran war has added a geopolitical risk premium to oil prices

•Dell Technologies Inc. shares gained 0.6% while Super Micro Computer Inc. shares plunged 33% after three people associated with the company including its co-founder were indicted by the U.S. Attorney’s Office for allegedly conspiring to commit export-control violations

•Fertilizer companies including Mosaic Co. and Toronto-listed Nutrien Ltd. slipped after BofA Global Research cut its recommendation on Mosaic to netural from buy on higher raw materials prices caused by the U.S.-Iran conflict

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