Wall Street lost ground Friday as investors weighed the Iran war’s impact on energy prices and inflation expectations, with stocks worldwide sliding on the increased risk to the global economy. The S&P 500 fell 0.6% after being up as much as 0.9% earlier, ending the week with its third straight weekly loss. The Dow Jones Industrial Average dropped 0.3%, and the Nasdaq composite finished 0.9% lower, extending losses after volatility tied to the conflict.
Crude prices again moved higher after briefly easing earlier in the day, taking the benchmark back above $100 a barrel. Brent crude closed at $103.14 per barrel, up 2.7%, while U.S. crude settled at $98.71, up 3.1%. Brent was up about 40% for the month, and U.S. crude had risen around 46% during the same period.
The market’s focus remained tightly linked to oil flow disruptions in the Middle East. Iran’s actions have effectively stopped cargo traffic through the narrow Strait of Hormuz, where a fifth of the world’s oil typically sails, and that has led producers to cut output because crude has nowhere to go. In just over a week since the closure of the Strait of Hormuz, more than 12 million barrels of oil equivalent per day had been taken offline, according to Rystad Energy. If the war keeps hampering Persian Gulf oil production and transportation, some economists warned it could trigger a surge in inflation that could hurt the global economy.
Michael Antonelli, a market strategist at Baird, described how energy and geopolitics had dominated trading. “Everything’s just trading with crude oil at this point,” Antonelli said. “We’re basically in a holding pattern until we get kind of the hour-by-hour, day-by-day news about the conflict in the Middle East.”
Bond markets reflected the same inflation sensitivity. Long-term bond yields continued to rise Friday, with the 10-year Treasury yield moving to 4.28% from 4.26% late Thursday; the yield had been 3.97% before the war started. When yields rise, the story said, they can push up interest rates on consumer loans such as mortgages and can weigh on prices across investments, from stocks to crypto.
The rate-cut outlook stayed muted in the latest pricing. The Federal Reserve is scheduled to hold its next interest rate policy meetings next week, but Wall Street traders placed the odds of a rate cut at less than 1%, according to data from CME Group. With that backdrop, a Fed cut could support the economy and job market but also potentially worsen inflation, given the way oil-driven price pressures can work through expectations.
Recent economic data also added to the pressure. A Commerce Department snapshot showed inflation climbed in January even before the Iran war caused oil and gas prices to spike: prices rose 2.8% compared with a year earlier, and core prices—excluding volatile food and energy categories—rose 3.1%, up from 3% in the prior month and the highest in nearly two years. The report also showed consumer spending rose at a 0.4% pace in January while incomes increased at the same rate. Separately, the University of Michigan’s consumer sentiment gauge declined slightly to its lowest reading of the year, with gasoline price increases since the start of the Iran war cited as a factor.
On individual stocks, Ulta Beauty fell 14.2%, the biggest decline among S&P 500 companies, after its quarterly results came in below analysts’ profit targets. The company’s profit was hurt by a 23% increase in selling, general and administrative expenses, which rose to $1 billion in the period.
By the close, the S&P 500 fell 40.43 points to 6,632.19, the Dow lost 119.38 points to finish at 46,558.47, and the Nasdaq declined 206.62 points to 22,105.36. In overseas trading, European indexes closed mostly lower after falling in Asia.