Wall Street continued to face challenges as losses deepened on Friday, primarily driven by ongoing tensions stemming from the war in Iran, which have been exerting upward pressure on oil prices and exacerbating inflation across the globe. The S&P 500 index declined by 0.6%, despite a brief increase of 0.9% earlier in the day, marking a 3.1% decrease in the index year-to-date. The Dow Jones Industrial Average fell 0.3%, while the Nasdaq composite experienced a larger loss of 0.9%. The week concluded with these indexes recording their third consecutive weekly loss.
Crude oil prices, which had shown some easing earlier in the day, rose again, pushing the benchmark price back above $100 a barrel. Brent crude, the international standard, increased by 2.7%, closing at $103.14 per barrel, reflecting a rise of approximately 40% for the month. U.S. crude oil prices surged by 3.1% to settle at $98.71, marking a staggering 46% increase this month alone. Michael Antonelli, a market strategist from Baird, noted that market actions are heavily tethered to crude oil prices, indicating that traders are in a state of waiting for real-time updates about the conflict in the Middle East.
The volatility of oil prices has been prominent since the onset of the war, particularly as Iranian actions have disrupted cargo traffic through the strategically crucial Strait of Hormuz, a vital passageway for about a fifth of the world’s oil. The escalation of the conflict has led oil producers to scale back production as there is a significant decrease in transport options for their crude. Independent research firm Rystad Energy reported that over 12 million barrels of oil equivalent per day have been taken offline due to the closure of the Strait of Hormuz in just over a week.
The ongoing conflict could exacerbate inflationary pressures globally, with concerns looming that prolonged disruptions in oil production and transportation could impact the wider economy. President Donald Trump indicated plans to take further measures to address the pressure on oil flows, which follows the administration’s decision to allow India temporary permission to purchase Russian oil. The International Energy Agency announced that its members would release a record 400 million barrels of oil from emergency reserves; however, many economists believe this move may not sufficiently stabilize market sentiments.
In the bond market, long-term yields continued to rise, a reaction to the upward trend of oil prices, which are a key indicator of inflation. The yield on the 10-year Treasury climbed to 4.28%, up from 4.26% the previous day, and significantly higher than the 3.97% seen prior to the conflict. Rising bond yields often lead to increased interest rates on consumer loans, such as mortgages, and can push down prices across various investment sectors including stocks and cryptocurrencies.
Recent data from the Commerce Department revealed that inflation was already creeping higher in January, prior to the conflict in Iran inflating energy costs. Prices rose by 2.8% year-on-year in January, with a core price increase (excluding food and energy) rising to 3.1%—the highest in nearly two years. Despite these pressures, consumer spending saw a solid gain of 0.4% in January, reflecting a similar increase in income for consumers.
Consumer sentiment, however, appears to be faltering, with the University of Michigan’s latest survey indicating a slight decline to the year’s lowest levels, attributed in part to rising gasoline prices linked to the ongoing conflict in Iran. Additionally, revised estimates for U.S. economic growth during the October-December quarter showed a modest annual rate of just 0.7%, a decrease from previous estimates influenced by a government shutdown.
Specific stock performances revealed notable variances as well, with Ulta Beauty experiencing a significant decline of 14.2% after reporting quarterly results that fell short of analysts’ profit targets, largely due to skyrocketing administrative expenses. Overall, the S&P 500 dropped 40.43 points to 6,632.19, while the Dow lost 119.38 points, finishing at 46,558.47. The Nasdaq composite closed down by 206.62 points to settle at 22,105.36. International markets mirrored this downward trend, with European indexes primarily closing lower following earlier losses in Asian markets.
