Oil spike drives Wall Street lower as Iran war stokes global economic fears

The war with Iran pushed oil prices to their highest level since summer 2024 on Thursday, dragging U.S. stocks broadly lower and erasing what had been a small year-to-date gain for the S&P 500. The S&P 500 fell 0.6% to 6,830.71, the Dow Jones Industrial Average dropped 784.67 points to 47,954.74 after briefly plunging more than 1,100 points intraday, and the Nasdaq composite slipped 58.50 points to 22,748.99. Benchmark U.S. crude settled at $81.01 per barrel, up 8.5% for the session.

The surge in oil prices fed fears that sustained high energy costs could slow the global economy, push inflation higher, and force the Federal Reserve to delay the interest-rate cuts it had planned to resume later this year — a combination that rattled investors across asset classes and sent airline stocks to some of the session’s steepest losses.

The war with Iran sent oil prices to their highest level since summer 2024 on Thursday, pulling U.S. stocks broadly lower and wiping out what had been a modest year-to-date gain for the S&P 500.

The S&P 500 fell 38.79 points, or 0.6%, to close at 6,830.71. The Dow Jones Industrial Average dropped 784.67 points, or 1.6%, to 47,954.74 — after briefly plunging more than 1,100 points during the session before recovering some ground. The Nasdaq composite slipped 58.50 points, or 0.3%, to 22,748.99, according to the Associated Press.

Oil prices and the Strait of Hormuz

Benchmark U.S. crude settled at $81.01 per barrel Thursday, up 8.5% for the day. Brent crude, the international standard, climbed 4.9% to $85.41 per barrel. Both benchmarks reached their highest prices since 2024.

Markets are closely watching the Strait of Hormuz, a narrow waterway off Iran’s coast through which roughly a fifth of the world’s oil typically travels. Disruptions there could tighten global supply and sustain elevated energy prices for an extended period, traders and analysts said.

Oil prices pulled back from their intraday highs near the end of trading, which helped U.S. stocks moderate some of their losses before the close.

Gas prices jump at the pump

The average price for a gallon of regular gasoline in the United States reached $3.25, up 9% from $2.98 a week earlier, according to auto club AAA.

Some analysts and investors said that if oil were to climb to $100 per barrel and remain there, it could be too much for the global economy to withstand, according to the Associated Press.

Airlines and small-cap stocks hardest hit

Airlines posted some of the session’s steepest declines. Higher fuel costs are already weighing on their finances, while the war has stranded hundreds of thousands of passengers across the Middle East. American Airlines fell 5.4%, United Airlines dropped 5% and Delta Air Lines sank 3.9%.

Smaller companies also took heavy losses. The Russell 2000 index of small-cap stocks fell 1.9% — typical behavior in periods when investors grow concerned about both economic growth and rising interest rates, the AP reported.

Bond yields rise; Fed timeline shifts

Rising oil prices added upward pressure on inflation expectations, pushing Treasury yields higher. The yield on the 10-year Treasury note rose to 4.13% Thursday from 4.09% the prior session. Before the conflict with Iran began, the 10-year yield stood at 3.97%.

Higher yields complicate planning for the Federal Reserve, which had indicated it intended to resume cutting interest rates later this year to support the job market and economy. Because of the war and elevated energy costs, traders have pushed their forecasts for the first rate cut further into the summer, according to the Associated Press.

High interest rates make it more expensive for households and businesses to borrow, which can slow economic activity even as high energy prices are pressing from the other direction.

Broadcom partially offsets losses

The S&P 500’s declines would have been larger without Broadcom. The chip company’s stock rose 4.8% after reporting quarterly profit and revenue that exceeded analyst expectations. Chief Executive Hock Tan said the company benefited from a 74% jump in revenue from AI chips.

Broadcom is among the largest stocks in the S&P 500 by total market value, giving it an outsized effect on the index. Energy producers also posted gains as oil prices rose, helping to blunt broader losses.

Professional investors urge patience

Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said the conflict presents manageable risk for investors willing to wait out the volatility. “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,” Wren said.

Despite frenetic swings — sometimes hour by hour over the past week — the S&P 500 was down only 0.7% for the week as of Thursday’s close, as gains in technology and energy stocks have partially offset broader market losses.

International markets

Asian markets rebounded Thursday after historic losses the session before. South Korea’s Kospi rose 9.6%, recovering much of its 12.1% plunge on Wednesday — which the AP described as the worst single-day decline in the index’s history.

European markets declined as oil prices accelerated. France’s CAC 40 fell 1.5% and Germany’s DAX lost 1.6%.