Oil prices surged again on Thursday, driven by increased conflict in the Middle East, which poses a threat to the global supply of crude oil. This escalation is putting pressure on Wall Street, with significant declines in two of its major stocks, Alphabet and Tesla. As a result, the S&P 500 dropped by 0.8%, potentially heading for its first consecutive weekly loss since March. By 9:35 a.m. Eastern time, the Dow Jones Industrial Average had fallen 363 points, or 0.7%, while the Nasdaq composite decreased by 1.6%.
Rising oil prices are creating challenges for businesses as they lead to increased costs and divert consumer spending towards higher fuel expenses. Brent crude oil, the international benchmark, rose by 6.1% to $99.78 per barrel. The price briefly surpassed $100 earlier in the morning, reaching its highest level in two months after attacks on two Saudi oil tankers in the Red Sea. These attacks threaten alternative routes for transporting crude from the Middle East, including the Strait of Hormuz. Highlighting the importance of these sea routes, U.S. President Donald Trump threatened severe military action against the Houthi rebels in Yemen, backed by Iran, if such attacks on shipping continue.
A few weeks prior, Brent crude had dipped below $72 per barrel, mirroring levels before the U.S. and Iran initiated conflict. This drop had fostered optimism regarding the reopening of the Strait of Hormuz to oil tankers. However, the recent spike in oil prices is rekindling inflation fears, potentially prompting the Federal Reserve and other central banks to raise interest rates. Such actions could slow economic growth and reduce the value of stocks and other investments. The yield on the 10-year Treasury rose to 4.70% from 4.67% the previous day, a marked increase from 3.97% before tensions with Iran intensified. This rise is already impacting U.S. mortgage rates, elevating them to levels not seen in nearly a year.
Companies with substantial fuel expenses experienced significant stock losses due to concerns about rising costs. American Airlines dropped 9.1%, despite exceeding analysts’ profit expectations for the spring, a performance that typically boosts stock prices. It managed to mitigate higher fuel costs by raising airfares. Similarly, Southwest Airlines declined 4.2% even though it reported better-than-expected profit and revenue for the last quarter. It managed to extract more profit from each dollar of its revenue during the spring, despite increased fuel prices.
Tesla was among the largest detractors to the U.S. stock market. Its stock plummeted 9.8% after reporting weaker quarterly profits than anticipated, despite being one of the largest components of the S&P 500 by market value. Another major player, Alphabet, saw its stock fall 5.7% although it posted stronger profits and revenue than analysts expected. Investors seemed concerned about Alphabet’s significant investments in artificial intelligence. Despite CEO Sundar Pichai noting that AI demand led to an 82% increase in cloud revenue last quarter, investors remain cautious about whether these expenditures will translate into substantial productivity gains and profits.
European stock indexes also fell sharply in response to rising oil prices, with France’s CAC 40 dropping 1.7%, marking one of the larger declines. In contrast, earlier trading sessions in Asia saw stronger performances, with South Korea’s Kospi rising by 4.4%.
AP Business Writers Matt Ott and Elaine Kurtenbach contributed to this report.