Stocks plunged to start the week as U.S. oil topped $100 a barrel, raising concerns about a stagflationary environment for the U.S. economy of rising inflation and slowing growth.
The Dow Jones Industrial Average fell 453 points, or about 1%. The 30-stock index is coming off its biggest weekly slide in nearly a year. The S&P 500 lost 0.9%, along with the Nasdaq Composite. The Cboe Volatility index — Wall Street’s fear gauge measuring investors seeking protection in the options market — topped 30 for the first time since the market’s tariff driven sell-off of last April.
West Texas Intermediate crude jumped 10% to around $100 per barrel, its first time above the $100 level since 2022 when investors were reacting to the aftermath of Russia’s invasion of Ukraine. Oil prices rose above $119 at one point in overnight trading. International benchmark Brent crude added 10% to reach $102 a barrel. U.S. oil prices began the year below $60 a barrel.
Oil futures jumped after major Middle East producers slashed their output due to the continued closure of the key Strait of Hormuz passageway. Kuwait announced cuts but did not say by how much, while Iraq has reportedly seen its production fall 70%.
Oil prices came off their highest levels of the session and stock futures rose from their lows following a Financial Times report that G7 officials were considering tapping their strategic reserves.
The $100 oil level was seen by many on Wall Street as a breaking point for the economy unless the war is resolved quickly and prices retreat. Trump posted Sunday evening that a gain in “short term oil prices” was a “very small price to pay” for destroying Iran’s nuclear threat.
The war showed little signs of easing despite Trump’s claim it was “already won” with Iran naming Ayatollah Khamenei’s son, Mojtaba, as its new supreme leader, according to reports.
“We can’t rule out a bear market if investors start to anticipate a Stagflating 1970s Redux scenario,” wrote Ed Yardeni, president and chief investment strategist for Yardeni Research. “If the oil shock persists, the Fed’s dual mandate would be stuck between the increasing risk of higher inflation and rising unemployment.”
Yardeni added that he remains optimistic the war will be resolved in a few weeks and his base case scenario is still a technology-led economic boom and bull market.
Shares of financials and industrials led the declines in early trading on fears of an economic slowdown. Defense and energy stocks were the only groups higher.
U.S. crude soared more than 35% last week, marking its biggest weekly gain since the futures contract began trading in 1983. The Dow slid around 3% last week, its worst weekly decline since April. The broad S&P 500 shed 2%, while the Nasdaq Composite ended the week 1.2% lower.