Markets fall as oil strengthens and rate-cut hopes fade
Major U.S. stock indexes slid again on Friday after another climb in oil prices undermined Wall Street’s hopes that the Federal Reserve could cut interest rates this year. The drop came after early losses deepened as oil prices erased a dip and accelerated later in the session, reinforcing investor concerns that a prolonged war with Iran could keep energy costs elevated and inflation pressure persistent.
Brent crude, the international benchmark, settled at $112.19 per barrel, up 3.3%, while benchmark U.S. crude ended at $98.32 per barrel, up 2.3%. The move in energy was accompanied by a broad selloff in equities, with traders also pointing to rising borrowing costs that tend to weigh on stock valuations.
The declines extended market losses that had already been building through the week. The S&P 500 fell 1.5% to close its fourth straight losing week, its longest such streak in a year, with the Dow Jones Industrial Average dropping 443 points, or about 1%, and the Nasdaq composite falling 2%.
Bonds rise, and yields reflect Iran-war inflation fears
Stock losses coincided with “leaping yields” in the bond market, a shift investors tied to expectations that higher oil and natural gas prices would feed into inflation. Higher yields generally make mortgage rates and other borrowing more expensive, which can slow the economy, and they can also pressure prices for many investments by raising the discount rate investors use to value future cash flows.
Treasury yields climbed sharply, including the 10-year Treasury yield finishing at 4.25%, up from 4.25% late Thursday in the AP report’s account of the move. The two-year Treasury yield rose to 3.88% from 3.79% late Thursday, near its highest level since the summer, while the 10-year minus 2-year Treasury spread stood at 0.51. The AP report described the spread as part of the bond-market signal that investors were recalibrating recession expectations as the war’s potential economic effects were priced in.
Traders also reduced wagers on Fed cuts. According to data from CME Group cited by AP, traders had canceled nearly all bets that the central bank could cut interest rates this year, and some even discussed the possibility of a rate increase in 2026.
Rate expectations collide with political pressure
Lower interest rates, which would typically support stocks by improving growth prospects and making borrowing cheaper, have been favored by President Donald Trump, who has publicly pressed for rate reductions, AP reported. Before the war, traders were betting heavily that the Fed would cut rates at least twice this year.
But Miletti, head of equity investments at Allspring Global Investments, argued that the bond-and-rate outlook hinged on how long high oil prices last. She said a rate hike “would be market shaking,” while also adding that if oil prices remained high for an extended period, they would likely drag so much on the economy that the Fed would not raise rates.
Energy swings reflect uncertainty over the war’s length
AP reported that Brent crude had “zigzagged sharply” since the war began, moving from roughly $70 per barrel before the conflict to as high as $119.50 this week. The report also described hour-to-hour swings as markets tried to estimate how long the war with Iran might last and how much damage it could do to oil and gas production in the Persian Gulf.
Miletti told AP that oil prices were not at a “red-flag point” yet, but that the market was “getting close if the duration is long enough.” She said investors would likely become more cautious if the situation remained similar months later, arguing that companies could adjust to gradual oil-price increases but were less able to quickly change their business models if a sudden spike became a new normal.
Sectors and company moves: Super Micro among the laggards
Beyond macro factors, individual stocks reflected investors’ risk appetite. Roughly three out of every four companies in the S&P 500 fell, and smaller-company stocks led declines, with the Russell 2000 index down 2.3%. Among the week’s notable decliners, Super Micro Computer lost about a third of its value, tumbling 33.3% after the U.S. government accused a senior vice president of the company and two others affiliated with it of conspiring to smuggle servers containing advanced Nvidia chips to China.
Super Micro said it was cooperating with the investigation and was not a defendant in the indictment. The company placed its two accused employees on administrative leave and terminated its relationship with an accused contractor.
One of the few winners cited by AP was FedEx, which rose 0.8% after delivering a stronger profit for the latest quarter than analysts had expected.
Indexes slip and yields jump beyond Wall Street
AP said the S&P 500 finished the day down 100.01 points at 6,506.48, the Dow fell 443.96 to 45,577.47, and the Nasdaq composite sank 443.08 to 21,647.61. In the bond market, the 10-year yield and the two-year yield both rose compared with Thursday levels, and the report said higher yields undermined other investments such as gold, which pays no interest.
Outside the United States, AP reported that stock indexes fell sharply in Europe following losses the previous day, while indexes also sank in China, though South Korea’s Kospi added 0.3%. AP said the week ended with gold at $4,574.90 per ounce, down from earlier records earlier in the year when it briefly topped $5,400.