Conflict set to sway US stocks as inflation data adds wrinkle

Investors will seek signs in the coming week of how sprawling the war in the Middle East will become and how much it will disrupt energy supplies, as they chew over fresh inflation data.

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A US-Israeli campaign against Iran that entered its seventh day on Friday was consuming markets, with a jump in oil prices headlining volatility across assets. US stocks swung sharply following the Middle East escalation, leaving the benchmark S&P 500 down 28 for the week. The Cboe Volatility Index, Wall Street's most-watched gauge of investor anxiety, on Friday hit its highest level in nearly a year.

Compounding woes for stocks was Friday's weak US jobs report. The data for February showed a surprise drop in payrolls and the unemployment rate rising to 4.48.

Investors were balancing the historic tendency for equities to rebound in the wake of major global developments against a lack of clarity about the Iran situation. "This is a very big event and it seems incredibly uncertain where it's headed," said Rick Meckler, partner at Cherry Lane Investments. "To some extent, it's left investors as neither sellers nor buyers."

One focal point for markets was the surge in energy prices stemming from the conflict and its significance for inflation and economic output. The fighting has paralyzed shipping through the Strait of Hormuz, a key artery for around a fifth of the world's oil and liquefied natural gas supply.