Dow drops 1,000 points after oil spikes to its highest price since 2024 summer

The Dow Jones Industrial Average dropped more than 1,000 points Thursday after the price of oil spiked to its highest level since the summer of 2024 because of the war with Iran. The Dow sank 1,066 points, or 2.2 per cent, and its steep losses accelerated through the day. The S&P 500, which is the measure of the US stock market that many more 401(k) accounts follow, fell 1.2 per cent, while the Nasdaq composite was down 1.1 per cent, with roughly an hour remaining in trading. The sell-off came as worldwide financial markets again followed the cue of oil prices. Sharp increases there are raising worries that a long-term spike could exhaust households' ability to spend, grind down the global economy and push interest rates higher. The price for a barrel of benchmark US crude shot up 8.5 per cent to settle at USD 81.01 per barrel. Brent crude, the international standard, climbed 4.9 per cent to USD 85.41 per barrel and is also near its highest price since two summers ago. The jumps came after Iran launched a new wave of attacks against Israel, American bases and countries around the region. The war's escalation is raising worries about how long disruptions will last in the region for the production and transport of oil and natural gas. Prices at US gasoline pumps have already jumped because of them. The average price for a gallon is USD 3.25, up 9 per cent from USD 2.98 a week ago, according to auto club AAA. To be sure, the US stock market has a history of bouncing back relatively quickly following conflicts in the Middle East and elsewhere. That has many professional investors suggesting patience and riding through the market's swings. ''While further escalation remains a risk, we think the more likely outcome is an increase in market risk aversion that likely lasts only a short time until investors can see a winding down of hostilities,'' according to Scott Wren, senior global market strategist at Wells Fargo Investment Institute. But if oil prices spike, like to USD 100 per barrel, and stay there, it could be too much for the global economy to withstand. Uncertainty about that has caused frenetic swings across financial markets this week, sometimes hour by hour. Much will depend on what happens with the Strait of Hormuz. Roughly a fifth of the world's oil typically sails through the narrow waterway off Iran's coast. Stocks of airlines fell to some of the US market's worst losses on Thursday. Higher oil prices are increasing their already big fuel bills, while the war has left hundreds of thousands of passengers stranded across the Middle East. American Airlines lost 6.4 per cent, United Airlines fell 6.6 per cent and Delta Air Lines sank 4.8 per cent. Stocks of smaller companies, meanwhile, took heavy hits. That's typical when worries are growing about the strength of the economy and about interest rates rising. The Russell 2000 index of the smallest stocks fell a market-leading 2.7 per cent. Wall Street's drop would have been worse if not for Broadcom. The chip company's stock rose 2.9 per cent after it reported stronger profit and revenue for the latest quarter than analysts expected. It's one of Wall Street's most influential stocks because it's one of the biggest by total value, and CEO Hock Tan said it benefited from a 74 per cent jump in revenue for AI chips. In the bond market, Treasury yields climbed as rising oil prices put more upward pressure on inflation, which could keep the Federal Reserve from cutting interest rates. The yield on the 10-year Treasury rose to 4.14 per cent from 4.09 per cent late Wednesday and from just 3.97 per cent before the war with Iran started. The Fed could keep interest rates high to keep a lid on inflation. But high interest rates would also keep it more expensive for US households and companies to borrow money, grinding down on the economy. The central bank had indicated it planned to resume its cuts to interest rates later this year, in hopes of giving a boost to the job market and economy. Because of the war and higher oil prices, traders have pushed their forecasts further into the summer for when the Fed could begin cutting rates again. Several reports on the US economy also came in mixed. One said fewer US workers filed for unemployment benefits last week than economists expected. That's an encouraging signal for the job market. In stock markets abroad, indexes rebounded in Asia following historic losses a day before. South Korea's Kospi jumped 9.6 per cent to recover much of its 12.1 per cent plunge from Wednesday, which was its worst drop ever. But indexes fell in Europe as oil prices began to accelerate. France's CAC 40 fell 1.5 per cent, and Germany's DAX lost 1.6 per cent.