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Stocks Fall After Oil Spikes Higher 03/05 15:32
Stocks sank on Wall Street Thursday after the price of oil spiked to its
highest level since the summer of 2024 because of the war with Iran.
NEW YORK (AP) -- Stocks sank on Wall Street Thursday after the price of oil
spiked to its highest level since the summer of 2024 because of the war with
Iran.
The S&P 500 fell 0.6% and erased what had been a small gain for the year so
far. The Dow Jones Industrial Average briefly dropped more than 1,100 points
before finishing with a loss of 784, or 1.6%. The Nasdaq composite slipped 0.3%.
The losses came as financial markets around the world keep following the cue
of oil prices. Sharp increases there are raising worries that a long-term surge
could grind down the global economy, exhaust households' ability to spend and
push interest rates higher.
The price for a barrel of benchmark U.S. crude shot up 8.5% Thursday to
settle at $81.01 per barrel. Brent crude, the international standard, climbed
4.9% to $85.41 per barrel and is likewise near its highest price since 2024.
Oil prices gave back some of those gains later in the day, which helped
stocks in the U.S. moderate their losses at the end of trading. But worries
nevertheless remain high about how long disruptions will last for oil
production because of the escalating war with Iran.
Prices at U.S. gasoline pumps have already leaped because of them. The
average price for a gallon is $3.25, up 9% from $2.98 a week ago, according to
auto club AAA.
If oil prices spike further, like to $100 per barrel, and stay there, some
analysts and investors say it could be too much for the global economy to
withstand. Uncertainty about what will happen has caused frenetic swings across
financial markets this week, sometimes hour by hour.
Much will depend on what happens with the Strait of Hormuz. Roughly a fifth
of the world's oil typically sails through the narrow waterway off Iran's coast.
To be sure, the U.S. stock market has a history of bouncing back relatively
quickly following conflicts in the Middle East and elsewhere, as long as oil
prices don't jump too high for too long. That has many professional investors
suggesting patience and riding through the market's swings.
"While further escalation remains a risk, we think the more likely outcome
is an increase in market risk aversion that likely lasts only a short time
until investors can see a winding down of hostilities," according to Scott
Wren, senior global market strategist at Wells Fargo Investment Institute.
The S&P 500 is down only 0.7% for the week so far, despite its sharp swings,
as gains for Big Tech stocks and oil producers have helped to blunt losses
across the rest of the market.
Stocks of airlines fell to some of the U.S. market's worst losses again on
Thursday. Higher oil prices are increasing their already big fuel bills, while
the war has left hundreds of thousands of passengers stranded across the Middle
East.
American Airlines lost 5.4%, United Airlines fell 5% and Delta Air Lines
sank 3.9%.
Stocks of smaller companies, meanwhile, took heavy hits. That's typical when
worries are growing about the strength of the economy and about interest rates
rising. The Russell 2000 index of the smallest stocks fell a market-leading
1.9%.
Wall Street's drop would have been worse if not for Broadcom. The chip
company's stock rose 4.8% after it reported stronger profit and revenue for the
latest quarter than analysts expected. It's one of Wall Street's most
influential stocks because it's one of the biggest by total value, and CEO Hock
Tan said it benefited from a 74% jump in revenue for AI chips.
All told, the S&P 500 fell 38.79 points to 6,830.71. The Dow Jones
Industrial Average dropped 784.67 to 47,954.74, and the Nasdaq composite
slipped 58.50 to 22,748.99.
In the bond market, Treasury yields climbed as rising oil prices put more
upward pressure on inflation, which could keep the Federal Reserve from cutting
interest rates.
The yield on the 10-year Treasury rose to 4.13% from 4.09% late Wednesday
and from just 3.97% before the war with Iran started.
The Fed could keep interest rates high to keep a lid on inflation. But high
interest rates would also keep it more expensive for U.S. households and
companies to borrow money, which would grind down on the economy.
The central bank had indicated it planned to resume its cuts to interest
rates later this year, in hopes of giving a boost to the job market and
economy. Because of the war and higher oil prices, traders have pushed their
forecasts further into the summer for when the Fed could begin cutting rates
again.
In stock markets abroad, indexes rebounded in Asia following historic losses
the day before. South Korea's Kospi soared 9.6% to recover much of its 12.1%
plunge from Wednesday, which was its worst drop ever.
But indexes fell in Europe as oil prices began to accelerate. France's CAC
40 fell 1.5%, and Germany's DAX lost 1.6%.
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