Stocks sank on Wall Street Thursday after the price of oil spiked to its highest level since the summer of 2024 because of the war with Iran.
The S&P 500 fell 0.6% and erased what had been a small gain for the year so far. The Dow Jones Industrial Average briefly dropped more than 1,100 points before finishing with a loss of 784, or 1.6%. The Nasdaq composite slipped 0.3%.
The S&P/TSX composite index was down 332.89 points at 33,609.97.
The losses came as financial markets around the world keep following the cue of oil prices. Sharp increases there are raising worries that a long-term surge could grind down the global economy, exhaust households’ ability to spend and push interest rates higher.
The price for a barrel of benchmark U.S. crude shot up 8.5% Thursday to settle at $81.01 per barrel. Brent crude, the international standard, climbed 4.9% to $85.41 per barrel and is likewise near its highest price since 2024.
Oil prices gave back some of those gains later in the day, which helped stocks in the U.S. moderate their losses at the end of trading. But worries nevertheless remain high about how long disruptions will last for oil production because of the escalating war with Iran.
Prices at U.S. gasoline pumps have already leaped because of them. The average price for a gallon is $3.25, up 9% from $2.98 a week ago, according to auto club AAA.
U.S. President Donald Trump said on Thursday that he was not concerned about rising gas prices, telling Reuters in an exclusive interview that the U.S. military operation was his priority.
“I don’t have any concern about it,” he said when asked about the higher prices at the pump. “They’ll drop very rapidly when this is over, and if they rise, they rise, but this is far more important than having gasoline prices go up a little bit.”
Trump later said further action to reduce pressure on oil was imminent.
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“The oil seems to have pretty much stabilized,” he said during an unrelated event at the White House. “We had it very low, but I had to take this little detour,” referring to the decision to strike Iran.
A senior White House official told reporters the U.S. Treasury Department is expected to announce measures as soon as Thursday aimed at combating rising energy prices, including potential action involving the oil futures market.
If oil prices spike further, like to $100 per barrel, and stay there, some analysts and investors say it could be too much for the global economy to withstand. Uncertainty about what will happen has caused frenetic swings across financial markets this week, sometimes hour by hour.
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.
To be sure, the U.S. stock market has a history of bouncing back relatively quickly following conflicts in the Middle East and elsewhere, as long as oil prices don’t jump too high for too long. 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 likely lasts 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.
The S&P 500 is down only 0.7% for the week so far, despite its sharp swings, as gains for Big Tech stocks and oil producers have helped to blunt losses across the rest of the market.
Stocks of airlines fell to some of the U.S. market’s worst losses again on Thursday. Higher oil prices are increasing their already big fuel bills, while the war has left hundreds of thousands of passengers stranded across the Middle East.
American Airlines lost 5.4%, United Airlines fell 5% and Delta Air Lines sank 3.9%.
Stocks of smaller companies, meanwhile, took heavy hits. That’s typical when worries are growing about the strength of the economy and about interest rates rising. The Russell 2000 index of the smallest stocks fell a market-leading 1.9%.
Wall Street’s drop would have been worse if not for Broadcom. The chip company’s stock rose 4.8% after it reported stronger profit and revenue for the latest quarter than analysts expected. It’s one of Wall Street’s most influential stocks because it’s one of the biggest by total value, and CEO Hock Tan said it benefited from a 74% jump in revenue for AI chips.
All told, the S&P 500 fell 38.79 points to 6,830.71. The Dow Jones Industrial Average dropped 784.67 to 47,954.74, and the Nasdaq composite slipped 58.50 to 22,748.99.
In the bond market, Treasury yields climbed 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 4.13% from 4.09% late Wednesday and from just 3.97% 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 keep it more expensive for U.S. households and companies to borrow money, which would grind down 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.
In stock markets abroad, indexes rebounded in Asia following historic losses the day before. South Korea’s Kospi soared 9.6% to recover much of its 12.1% plunge from Wednesday, which was its worst drop ever.
But indexes fell in Europe as oil prices began to accelerate. France’s CAC 40 fell 1.5%, and Germany’s DAX lost 1.6%.
AP Writers Kim Tong-hyung and Elaine Kurtenbach contributed. Additional files from Reuters.
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