Stocks declined as oil prices returned to around $100 a barrel, with Yardeni Research warning in a note on Friday that markets may be starting to factor in a longer conflict in the Middle East.

According to the firm, “the stock market may be starting to discount the possibility that the war won’t be short and that the Strait of Hormuz may remain effectively closed for some time.”

The note highlighted continued fighting. Yardeni Research cited a Wall Street Journal report saying Israeli officials believe Iran’s regime is unlikely to fall soon.

The firm notes that the S&P 500 is down 4.4 percent from its January high and the Nasdaq has fallen 6.4 percent from its October record. 

Yardeni Research reiterated its expectation for a 10 to 15 percent correction, adding that rising bond yields are compounding the pressure. The 10-year Treasury yield climbed from 3.95 percent on February 27 to 4.26 percent.

The firm believes that the market is beginning to price in the risk of stagflationary conditions, with the decline in inflation likely to reverse as energy, food and airfare costs rise in the wake of the conflict.

Yardeni Research also reviewed a set of pre-war economic indicators, including strong unemployment claims data and a narrowing U.S. trade deficit. Still, it warned that recession risks will “be increasing the longer the war persists.”

Sentiment measures such as the Bull/Bear Ratio have fallen sharply due to the war.

“The stock market may be getting closer to the bottom from a contrarian perspective. The bottom will be made when the Strait is open again for safe passage. That may take a while longer and push the BBRs still lower for the next few weeks,” Yardeni concluded.