Oil prices surged on Thursday as intensified conflicts in the Middle East raised concerns about disruptions to the global crude supply. This development comes as Wall Street experiences considerable losses, especially in key stocks like Alphabet and Tesla.
Stock Market Declines
The S&P 500 fell by 0.8%, moving towards what could be its first successive weekly decline since March. The Dow Jones Industrial Average decreased by 363 points, or 0.7%, while the Nasdaq Composite dropped 1.6%.
Impact of Rising Oil Prices
As oil prices climb, business costs rise, compelling companies to allocate more funds to fuel. This shift impacts consumer spending. Brent crude oil, which is the global benchmark, increased by 6.1% to $99.78 per barrel. Earlier, it temporarily surpassed $100, reaching its highest point in two months following attacks on two Saudi oil tankers in the Red Sea.
The disruption threatens vital routes for transporting Middle East crude across the world, alongside the Strait of Hormuz.
U.S. President Donald Trump has warned of significant military retaliation if the Houthi rebels in Yemen, supported by Iran, continue targeting ships. This reflects the economic significance of these maritime channels.
Previously, the price of Brent crude slipped below $72 amidst hopes for the full reopening of the Strait of Hormuz. This was before the ongoing conflict between the United States and Iran began.
Inflation Concerns and Economic Impact
The increase in oil prices could heighten inflationary pressures, potentially prompting central banks, including the Federal Reserve, to raise interest rates. Higher rates could slow economic growth and negatively impact stock prices. The yield on the 10-year Treasury has risen from 3.97% to 4.70% since the conflict began, leading to the highest long-term U.S. mortgage rates in about a year.
Company-Specific Losses
Companies with substantial fuel costs experienced sharp stock declines. American Airlines dropped by 9.1% despite reporting higher-than-expected profits, due to rising airfares to counter fuel expenses. Similarly, Southwest Airlines lost 4.2% even after reporting commendable profit and revenue figures for the latest quarter.
Tesla’s stock fell 9.8% following a weaker-than-expected profit report. Its substantial market value means it heavily influences the S&P 500. Meanwhile, Alphabet saw a 5.7% decline despite posting strong profits and revenue. Investor concerns centered on the company’s increased spending on artificial intelligence. CEO Sundar Pichai highlighted a growth acceleration in cloud revenue driven by AI demand. However, investors remain cautious about whether these investments will pay off.
Global Index Performance
In Europe, stock indexes dropped sharply with France’s CAC 40 declining by 1.7%. Markets in Asia showed different results earlier in the day, with South Korea’s Kospi rising by 4.4%.
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