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Historically, military conflicts in the Middle East have not led to prolonged downturns in the financial markets. However, the recent surge in oil prices could have lasting implications.
WASHINGTON D.C. — On Monday, oil prices surged amid fears that tensions involving Iran might disrupt global crude supplies, potentially exacerbating inflation. In response, U.S. stocks experienced significant fluctuations, ultimately recovering from initial losses to eke out a modest gain.
Crude oil prices soared by over 6%, a jump likely to translate into higher gasoline costs for consumers. This rise poses a challenge not only to American households, which are a driving force of the U.S. economy through their spending, but also to businesses facing increased fuel expenses.
The S&P 500 initially fell by as much as 1.2% when trading opened, with industries such as cruise lines and airlines leading the decline. However, the market rebounded swiftly, drawing on the pattern that previous military conflicts have seldom led to enduring market slumps. By the close of trading, the index had inched up by less than 0.1%.
The Dow Jones Industrial Average saw a slight dip of 73 points, equivalent to a 0.1% decrease, while the Nasdaq composite rose by 0.4%. Both indexes managed to recover from their early session declines.
Prices for natural gas remained higher, meanwhile, which could raise heating bills for the remainder of the winter, after a major supplier of liquefied natural gas to Europe said it would stop production because of the conflict. Gold climbed 1.2% as investors looked for safer things to own and as U.S. officials tried to persuade the world that this conflict will not last forever.
“This is not Iraq,” U.S. Defense Secretary Pete Hegseth said Monday. “This is not endless.”
Typically, Treasury yields also fall in the bond market when investors are feeling nervous. But yields instead climbed, in part because higher oil prices will put upward pressure on inflation, which is already worse than nearly everyone would like. That could tie the Federal Reserve’s hands and keep it from cutting interest rates.
Lower interest rates can boost the economy and job market, but they also worsen inflation. Higher rates can do the opposite.
Past military conflicts in the Middle East have not caused long-term drops for markets. For this conflict to knock down U.S. stocks in a significant and sustained way, the price of oil would perhaps need to jump above $100 per barrel, according to strategists at Morgan Stanley led by Michael Wilson.
Oil prices are still well below that level, even with Monday’s jump. The price for a barrel of benchmark U.S. crude rose 6.3% to settle at $71.23. Brent crude, the international standard, climbed 6.7% to $77.74 per barrel.
That helped the U.S. stock market pare some of its steep, opening loss. Morgan Stanley also said the S&P 500 has climbed an average of 2%, 6% and 8% in the one, six and 12 months following “geopolitical risk events” historically. That’s going back to the Korean War, which began in 1950, and the 1956 Suez crisis.
At this moment, though, fear is still running through markets.
Stocks of airlines were some of Monday’s sharpest losers. Not only do higher oil prices threaten their already big fuel bills, the fighting in the Middle East also closed airports and left travelers stranded.
American Airlines lost 4.2%, United Airlines fell 2.9% and Delta Air Lines sank 2.2%.
Norwegian Cruise Line Holdings dropped even more, 10.6%. It needs customers to have plenty of cash to spend after paying for gasoline and other essentials.
The cruise operator also reported weaker revenue for its latest quarter than analysts expected, though its profit was better. Its forecast for profit this upcoming fiscal year was also lower than analysts expected.
Stocks in the housing industry struggled as higher Treasury yields could translate into more expensive mortgage rates. Homebuilder D.R. Horton lost 3.7%, and Builder FirstSource sank 4.7%.
Helping the U.S. stock market to bounce back from its early losses were oil companies, which benefited from the rising price of crude. Exxon Mobil climbed 1.1%, and Marathon Petroleum rose 5.9%.
Companies that make equipment for the military also strengthened. Northrop Grumman climbed 5.9%, and RTX rallied 4.7%.
Palantir Technologies, whose software helps global defense agencies and other customers, jumped 5.8% for one of the biggest gains in the S&P 500.
Big Tech stocks also helped support the market. Nvidia rose 2.9% and was the strongest single force pushing the S&P 500 higher.
All told, the S&P 500 added 2.74 points to 6,881.62. The Dow Jones Industrial Average dipped 73.14 to 48,904.78, and the Nasdaq composite rose 80.65 to 22,748.86.
In stock markets abroad, indexes sank across much of Europe and Asia. Germany’s DAX lost 2.6%, France’s CAC 40 fell 2.2% and Hong Kong’s Hang Seng dropped 2.1% for some of the world’s larger losses.
Stocks in Shanghai were an outlier and rose 0.5%.
In the bond market, the yield on the 10-year Treasury rose to 4.04% from 3.97% late Friday. A report showing growth for U.S. manufacturing was better last month than economists expected also helped to lift yields.
AP Business Writers Matt Ott and Elaine Kurtenbach contributed.