The S&P 500 sheds 1%, the Dow gives up 516 points and the Nasdaq falls 1.8% by mid-morning, pressured by the Middle East escalation.
U.S. stock markets were sinking Thursday, pressured by a fresh jump in oil prices and sharp drops in two of Wall Street’s most heavily weighted stocks: Tesla and Alphabet.
The S&P 500 was down 1% as of 10 a.m. Eastern time and could be headed for its first back-to-back weekly loss since March. The Dow Jones Industrial Average was off 516 points, also 1%, while the tech-heavy Nasdaq Composite fell 1.8%.
Brent crude, the international benchmark, jumped 6.7% to $100.40 a barrel, its highest level in two months, after attacks on two Saudi oil tankers in the Red Sea threatened another key route for crude shipments out of the Middle East. President Donald Trump threatened “major military punishment” against Iran-backed Houthi rebels in Yemen if the attacks on ships continue.
Just a few weeks ago, Brent had dropped below $72 a barrel — roughly back to where it was before the United States and Iran went to war — on hopes the Strait of Hormuz would fully reopen to oil tankers. The renewed spike is reviving inflation fears and could push the Federal Reserve to raise interest rates, which would in turn slow the economy and weigh on stock and other asset prices.
Traders now see a nearly 36% chance the Fed will raise rates at its meeting next week, up from just 12% a week ago, according to data from CME Group. The yield on the 10-year Treasury rose to 4.70%, from 4.67% late Wednesday and well above the 3.97% level seen before the war with Iran began. The European Central Bank, meanwhile, held its rates steady at Thursday’s meeting.
Tesla was one of the market’s biggest drags: its shares sank 12.6% after Elon Musk’s electric-vehicle company reported a weaker-than-expected quarterly profit despite strong vehicle deliveries. Given its size, it is one of the most influential stocks in the S&P 500.
Alphabet, Google’s parent and one of the few stocks larger than Tesla, fell 6.2% even after reporting profit and revenue above expectations. Investors instead focused on the company’s higher capital-spending outlook for artificial intelligence. Chief Executive Sundar Pichai said AI demand helped accelerate cloud revenue growth to 82% last quarter, but doubts persist over whether the multibillion-dollar investment will pay off in productivity and profits.
Rising fuel costs also hit airline stocks: American Airlines fell 8.6% even though it reported a bigger profit than analysts had expected, after raising fares to offset higher fuel costs. Southwest Airlines gave back 4.7%, also despite beating profit and revenue estimates.
Overseas, European markets fell sharply on the oil spike — France’s CAC 40 lost 1.5% — while in Asia, where trading closed before the worst of the day’s losses set in, South Korea’s Kospi had gained 4.4%.
