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Stocks drop after oil spikes to its highest price since the summer of 2024 - AP News

📉 Stocks on Wall Street sank, with the S&P 500 down 0.6%, after oil prices spiked to levels not seen since the summer of 2024 due to war around the Persian Gulf.

💰 Oil prices jumped sharply, with U.S. benchmark crude rising 8.5% to settle at $81.01 per barrel and international Brent crude climbing to $85.41 per barrel.

⛽ Gasoline prices at U.S. pumps have already risen significantly, averaging $3.25 a gallon, which is up 9% from the previous week according to AAA.

🌍 Analysts worry that if oil prices remain high near or above $100 per barrel, a long-term surge could damage the global economy and increase interest rates.

🐦 Airline stocks suffered heavy losses, with American Airlines falling 5.4%, United Airlines down 5%, and Delta sinking 3.9% due to higher fuel bills.

📈 Broadcom provided a rare positive boost to the market, rising 4.8% after reporting stronger-than-expected profits driven by a surge in AI chip revenue.

⚠️ Smaller companies faced significant hits as the Russell 2000 index fell 1.9%, reflecting growing economic worries and fears of higher borrowing costs.

📊 Treasury yields rose to 4.13% as rising oil prices push upward pressure on inflation, potentially delaying Federal Reserve interest rate cuts until later this year.

🌏 International markets showed mixed reactions, with Asian indexes rebounding following historic losses, while European indexes fell as oil prices continued to climb.

⚓ Concerns remain high about the Strait of Hormuz, where roughly a fifth of the world’s oil shipments pass through narrow waters off Iran's coast.

💬 Scott Wren from Wells Fargo suggests that while escalation is possible, market risk aversion may only last a short time before hostilities wind down.

🔁 The U.S. stock market has historically bounced back quickly after Middle East conflicts, provided oil prices do not stay elevated for too long.

Bullish Signals
  • Broadcom's stock rose 4.8% after reporting stronger profit and revenue for the latest quarter than analysts expected.
  • CEO Hock Tan noted Broadcom benefited from a 74% jump in revenue for AI chips, highlighting growth in a key technology sector.
  • South Korea's Kospi soared 9.6% to recover much of its 12.1% plunge from Wednesday, demonstrating resilience and rebound potential in Asian markets.
  • Despite market volatility, the S&P 500 is down only 0.7% for the week so far, indicating that gains for Big Tech stocks and oil producers have helped to blunt losses across the rest of the market.
Risk Factors
  • Global energy trade is in turmoil as war around the Persian Gulf chokes off oil and natural gas shipments, causing prices to soar.
  • Stocks sank on Wall Street Thursday with the S&P 500 falling 0.6%, erasing small year-to-date gains, while the Dow Jones dropped 1.6%.
  • Rising oil prices are raising worries that a long-term surge could grind down the global economy and exhaust households' ability to spend.
  • The average price for a gallon of gasoline has already leaped to $3.25, up 9% from $2.98 a week ago, putting further pressure on consumers.
  • Analysts warn that if oil prices spike further to $100 per barrel and stay there, it could be too much for the global economy to withstand.
  • Stocks of airlines fell significantly with American Airlines losing 5.4%, United Airlines falling 5%, and Delta Air Lines sinking 3.9% due to increased fuel bills.
  • Smaller companies took heavy hits with the Russell 2000 index of smallest stocks falling a market-leading 1.9%.
  • Rising oil prices are putting upward pressure on inflation, pushing Treasury yields higher and potentially keeping the Federal Reserve from cutting interest rates sooner.
  • Traders have pushed their forecasts for Fed interest rate cuts further into the summer due to war-related concerns and inflation pressures.
  • Indexes fell in Europe with France's CAC 40 down 1.5% and Germany's DAX losing 1.6% as oil prices accelerated.
  • South Korea's Kospi plunged 12.1% on Wednesday, its worst drop ever, before recovering some losses on Thursday.
Full Analysis
Global energy markets faced significant turmoil on Thursday as war tensions between the U.S. and Iran pushed oil prices to their highest levels since the summer of 2024, triggering a broad sell-off on Wall Street. The S&P 500 fell 0.6% to close at 6,830.71 after erasing early gains for the year, while the Dow Jones Industrial Average dropped 784.67 points, or 1.6%, finishing at 47,954.74. The Nasdaq composite slipped 0.3% to 22,748.99. This market reaction was driven by fear that a prolonged spike in energy costs could stifle global economic growth, strain household budgets, and force the Federal Reserve to keep interest rates elevated for longer than anticipated. Oil prices surged throughout the day as benchmark U.S. crude jumped 8.5% to settle at $81.01 per barrel and Brent crude rose 4.9% to $85.41 per barrel. Concurrently, U.S. gasoline prices increased to an average of $3.25 per gallon, representing a 9% rise from the previous week according to AAA. Analysts warned that if oil prices remain near or above $100 per barrel for an extended period, the global economy could struggle to withstand such high inflationary pressures. However, some oil gains were erased later in the trading session as uncertainty over the duration of the war and disruptions at the Strait of Hormuz weighed on investor sentiment. Specific sectors experienced mixed performance amid the broader volatility. Airlines suffered heavy losses due to increased fuel costs and stranded passengers, with American Airlines dropping 5.4%, United Airlines falling 5%, and Delta Air Lines sinking 3.9%. In contrast, technology stocks provided some stability; Broadcom gained 4.8% after reporting better-than-expected quarterly profits driven by a 74% revenue jump in AI chips. Additionally, the Russell 2000 index of smaller companies fell sharply by 1.9%, reflecting concerns about economic strength and rising borrowing costs. International markets reacted unevenly, with Asia's indexes rebounding following historic Wednesday losses while European markets like France's CAC 40 and Germany's DAX declined as oil prices accelerated. The financial implications extend beyond stock indices to the bond market, where Treasury yields climbed to 4.13% on the 10-year note from 3.97% prior to the escalation of hostilities with Iran. This rise in yields underscores growing inflation worries that may delay the Federal Reserve's planned interest rate cuts later this year. Market strategists like Scott Wren at Wells Fargo Investment Institute suggest that while further escalation is a risk, the more likely outcome is a short-term period of market risk aversion followed by a winding down of hostilities. Investors are closely watching the Strait of Hormuz, through which roughly a fifth of the world's oil shipments pass, to gauge the potential longevity of production disruptions and their impact on energy prices and the global economy.