US stocks fall as rising oil prices shake global markets
US stocks slipped as rising oil prices linked to the Iran conflict weighed on markets. Airline and retail shares declined while investors watched the Strait of Hormuz closely. Higher energy prices may also delay Federal Reserve interest rate cuts
New York: Most stocks are falling on Wall Street on Thursday as oil prices rise further, though the moves are less severe than earlier in the week.
The S&P 500 slipped 0.2 per cent in morning trading, coming after a frenetic start to the week that saw financial markets worldwide swerve sharply, sometimes hour by hour. The Dow Jones Industrial Average was down 452 points, or 0.9 per cent, as of 10:15 am Eastern time, and the Nasdaq composite was 0.1 per cent higher.
Markets again seem to be following the cue of oil prices. Worries are high that a long-term spike because of the war with Iran could exhaust households’ ability to spend, as well as grind down the global economy and push interest rates higher.
A barrel of Brent crude, the international standard, rose 2.9 per cent to $83.74. That is up from close to $70 late last week. A barrel of benchmark US crude climbed 4.6 per cent to $78.15.
Oil prices rose after Iran launched a new wave of attacks against Israel, American bases and countries across the region. The war’s escalation is raising worries about how long disruptions could last for the production and transport of oil and natural gas in the region.
Prices at US gasoline pumps have already jumped because of it. The average price for a gallon is $3.25, up 9 per cent from $2.98 a week ago, according to auto club AAA.
To be sure, the US stock market has a history of bouncing back relatively quickly following conflicts in the Middle East and elsewhere. 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 will likely last 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.
But if oil prices spike, such as to $100 per barrel, and stay there, it could be too much for the global economy to bear.
Uncertainty about that has caused this week’s sharp swings, and 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.
Stocks of retail chains fell to some of the US market’s worst losses on Thursday. High gasoline prices mean their customers would have less to spend on other things.
American Eagle Outfitters fell 12.4 per cent even though it reported stronger profit and revenue for the latest quarter than analysts expected.
Airlines also took sharp losses. Higher oil prices are increasing their already high fuel bills, while the war has also left passengers stranded across the Middle East.
American Airlines lost 4.4 per cent, United Airlines fell 4.8 per cent and Delta Air Lines sank 4.5 per cent.
Wall Street’s losses would have been worse if not for Broadcom. The chip company’s stock rose 4.8 per cent after it reported stronger profit and revenue for the latest quarter than analysts expected.
It is one of Wall Street’s most influential stocks because it is among the biggest by total value, and CEO Hock Tan said it benefited from a 74 per cent jump in revenue for AI chips.
In the bond market, Treasury yields rose 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 4.12 per cent from 4.09 per cent late Wednesday and from just 3.97 per cent 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 make it more expensive for US households and companies to borrow money, weighing 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.
Several reports on the US economy also came in mixed.
One said fewer US workers filed for unemployment benefits last week than economists expected. That is an encouraging signal for the job market.
A second report said productivity for US workers slowed sharply at the end of last year.
That could be a discouraging sign for the economy because high productivity allows wages to rise for workers without putting upward pressure on inflation. But economists said last quarter’s numbers were affected by the US government shutdown.
In stock markets abroad, indexes rebounded in Asia following historic losses a day earlier. South Korea’s Kospi jumped 9.6 per cent to recover much of its 12.1 per cent plunge from Wednesday, which was its worst loss ever.
But indexes fell in Europe as oil prices began to accelerate. France’s CAC 40 fell 0.4 per cent, and Germany’s DAX lost 0.4 per cent.
