US stocks lost ground Friday as investors weighed the Iran war’s impact on oil prices and inflation, with Wall Street’s losses deepening as crude prices climbed again after briefly easing earlier in the day.
The S&P 500 fell 0.6% after having been up as much as 0.9% in the early going, leaving it down 3.1% so far this year. The Dow Jones Industrial Average lost 0.3%, and the Nasdaq composite finished 0.9% lower. The indexes also ended the week with their third straight weekly loss.
Oil prices rose as anxiety about the Middle East conflict kept pressure on energy markets. Brent crude closed 2.7% higher at $103.14 per barrel, and it was up about 40% for the month. US crude settled at $98.71 a barrel, up 3.1%, and it has risen around 46% this month.
“Everything’s just trading with crude oil at this point,” said Michael Antonelli, market strategist at Baird. “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.”
Rystad Energy has said the disruption has been large: 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. The AP reported that Iran’s actions have effectively stopped cargo traffic through the Strait of Hormuz, where a fifth of the world’s oil typically sails, and that oil producers have been cutting production because their crude has nowhere to go.
The prospect of continued disruptions is raising concerns about inflation. The report said that if the war keeps hampering oil production and transportation from the Persian Gulf, it could cause a surge in inflation that could hurt the global economy. In the meantime, bond markets were also reacting, with long-term yields rising as oil prices climbed.
The yield on the 10-year Treasury rose to 4.28% from 4.26% late Thursday. The AP said the yield was 3.97% before the war started, and reported that higher oil-driven inflation expectations can push yields higher—affecting interest rates on consumer loans and other investments.
Wall Street also appeared to be pricing in limited odds of near-term relief from the Federal Reserve. The AP reported that traders put the odds of a rate cut at less than 1%, citing CME Group, as the Fed was scheduled to hold its next interest rate policy meetings next week.
A consumer-spending snapshot showed inflation pressures persisting even before the war’s oil and gas price spike. The Commerce Department said prices rose 2.8% in January compared with a year earlier, and that excluding food and energy, core prices rose 3.1%—up from 3% in the prior month. Consumers still lifted spending at a 0.4% pace in January, while incomes rose at the same pace, according to the report.
Sentiment data also weighed on market mood. The University of Michigan’s latest gauge of consumer sentiment declined slightly to its lowest reading of the year on Friday, the AP said, citing gasoline-price hikes since the start of the Iran war.
The AP also pointed to an update on economic growth for the October-December quarter, saying the economy grew at a sluggish 0.7% annual rate. It described the rate as a downgrade from the initial estimate last month, amid the lingering effects of last fall’s 43-day government shutdown.
Individual stocks reflected the broader pressure on growth expectations and cost concerns. Ulta Beauty slid 14.2% for the biggest decline among S&P 500 stocks after the beauty and makeup retailer’s quarterly results fell short of analysts’ profit targets. The AP reported that Ulta’s profit was affected by a 23% increase in selling, general and administrative expenses, which jumped 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 dropped 206.62 points to 22,105.36. In stock markets abroad, indexes in Europe closed mostly lower after falling in Asia.