Global stock markets experienced a sell-off on Tuesday, impacting Wall Street as concerns over the escalating conflict with Iran heightened. Despite significant losses early in the day, the S&P 500 managed to reduce its decline to 0.9% by the closing bell, down from a peak of 2.5%.
The Dow Jones Industrial Average initially dropped 0.8% or 403 points, recovering from a substantial morning plunge of over 1,200 points. Similarly, the Nasdaq composite trimmed its loss to 1%.
Oil prices surged amid fears of the expanding conflict, with Brent crude briefly exceeding $84 US per barrel before settling at $81.40 US, marking a 4.7% increase. Benchmark U.S. crude also rose by 4.7% to $74.56 US per barrel.
The spike in oil prices was triggered by Iran’s attack on the U.S. Embassy in Saudi Arabia, targeting strategic locations crucial for global oil and natural gas production. Concerns are particularly high regarding the potential impact on the Strait of Hormuz, a vital passage for approximately one-fifth of the world’s oil shipments.
Iran’s Brig.-Gen. Ebrahim Jabbari announced the closure of the Strait of Hormuz, threatening to set fire to any passing ships. Uncertainties surrounding the duration of the conflict are contributing to market volatility.
Market analysts, such as Thomas Hayes from Great Hill Capital, anticipate a prolonged conflict, citing the implications of Iran’s attacks and the disruption of energy supplies on inflation and the Federal Reserve’s monetary policy decisions.
President Donald Trump hinted at a protracted conflict, suggesting the capability of sustaining warfare indefinitely with the U.S.’s munitions supply. The surge in oil prices is expected to exacerbate inflation, impacting households and businesses by raising fuel costs.
Stock markets, particularly companies reliant on oil and natural gas, experienced significant losses. Airline stocks plummeted as fuel expenses surged, leading to flight cancellations and passenger disruptions. South Korea’s Kospi index plummeted by 7.2%, while Japan’s Nikkei 225 fell by 3.1%.
On Wall Street, airlines like American and United Airlines faced declines, reflecting concerns over escalating fuel expenses and operational disruptions. Despite the broad market downturn, Target emerged as a bright spot, with a 6.5% increase following a stronger-than-expected profit report.
In the bond market, Treasury yields rose as worries about worsening inflation intensified. The 10-year Treasury yield climbed to 4.10% from 4.05% the previous day, signaling potential implications for borrowing costs for households and businesses.