New York
—
Stocks fell and oil prices traded above $100 per barrel Monday as investors grappled with a potential energy crisis caused by the war with Iran.
The Dow fell 678 points, or 1.43%. The S&P 500 fell 1.28%, and the Nasdaq Composite sank 1.2%.
The Dow and S&P are coming off their worst weeks since April and October, respectively. Stocks have been jolted by nerves about the Middle East conflict disrupting the global flow of oil and reigniting inflation at a time when the US labor market appears to be on shaky ground.
Oil prices Monday surged to their highest level since mid-2022 when markets were rocked by Russia’s invasion of Ukraine. US crude oil surged 11%, to $101 per barrel. Brent crude, the international benchmark, was also up 11%, to $103 per barrel.
Nerves of an energy crisis intensified over the weekend as oil producers in the Gulf announced further halts to production, with Bahrain’s national oil company declaring force majeure. Meanwhile, Mojtaba Khamenei, the late Ayatollah’s son, has been named the next supreme leader in Iran.
“Investors were hoping cooler heads would prevail in the Iran war this weekend, and instead, tensions escalated, which is exacerbating last week’s stock market declines and oil price spikes,” Carol Shleif, chief market strategist at BMO Private Wealth, said in a note.
US crude and Brent gained 36% and 27% last week, respectively, before jumping higher Sunday evening when trading opened. Brent crude rose to nearly $120 per barrel before paring some gains after a report from the Financial Times that finance ministers from G7 countries are meeting to discuss the potential joint release of strategic oil reserves.
Still, oil prices are holding on to daily gains of 11% — a striking move above the key $100 per barrel threshold that is weighing on the outlook for stocks across the globe. Japan’s Nikkei 225 slumped 5.2% Monday. The slide put the index down more than 10% so far this month, although it is still up 5% this year.
Europe’s benchmark Stoxx 600 index was down 1.3%, putting it into the red for this year, after sliding more than 5% last week. The three major US stock indexes are in the red this year. The Dow and Nasdaq are more than 6% off their most recent peaks, while the S&P is down more than 4% since hitting a record high in late January.
“Investors are clearly in a risk-off mindset as each day delivers headlines announcing a further widening of the conflict,” Sam Stovall, chief investment strategist at CFRA Research, said in a note.
“No one knows if the current crisis will result in a pullback, correction, or bear market,” Stovall said.
The war with Iran has effectively halted the flow of oil through the Strait of Hormuz, the narrow waterway off Iran’s coast through which 20% of global oil consumption flows.
“This chaos in the financial markets is all about the Strait of Hormuz,” Ed Yardeni, president of Yardeni Research, said in a note.
“This oil shock won’t end until ships can sail freely through the Strait,” Yardeni said. “Until then, the financial markets are likely to become increasingly concerned about a 1970s-style stagflation scenario.”
Treasury yields ticked higher despite a weak February jobs report that showed 92,000 jobs were shed that month, as investors sold bonds and recalibrated expectations for potentially higher inflation. The 10-year Treasury yield ticked up to 4.15%, its highest level in nearly one month. The US dollar index rose 0.2%, hitting its highest level since January and building on strong gains last week.
Wall Street’s fear gauge, the VIX, jumped 5% and hit its highest level since April, when markets were rocked by uncertainty about tariffs. “Fear” was the sentiment driving markets, according to CNN’s Fear and Greed Index, which hit its lowest reading in three months.
This is a developing story and will be updated.
