Is US$80 oil just the start investors rethink risk after Iran strikes?
Oil’s surge past US$80 a barrel has turned the Iran war from a geopolitical headline into a direct stress test for inflation, rate expectations and risk assets.
Canadian and US stocks fell Thursday after a brief respite, as financial markets tracked every tick in crude.
BNN Bloomberg reports that the S&P/TSX composite index dropped 332.89 points to 33,609.97, with all sectors negative except technology and basic materials the biggest drag.
In New York, the Dow Jones industrial average fell 784.67 points to 47,954.74, the S&P 500 declined 38.79 points to 6,830.71, and the Nasdaq composite slipped 58.50 points to 22,748.99.
Intraday, the damage ran deeper.
CNBC says the Dow was down more than 1,100 points, or about 2.4 percent, at its nadir, with Boeing, Caterpillar and other global growth proxies leading the selloff.
The 30-stock index dropped about 1,000 points almost exactly as oil crossed the US$80-per-barrel threshold, while the S&P 500 and Nasdaq were each down around 1.4 percent at their lows after briefly trading above flat.
West Texas Intermediate crude futures broke above US$80 in the afternoon to their highest level since July 2024 after Iran said it hit an oil tanker with a missile, and settled more than 8 percent higher at US$81.01 a barrel.
CNBC says Brent crude closed nearly 5 percent higher at US$85.41.
BNN Bloomberg reports that the April US crude contract rose US$6.35 to US$81.01, while Brent climbed 4.9 percent to US$85.41 and is near its highest level since 2024.
CNBC notes WTI is up more than 20 percent this week and Brent almost 18 percent, putting both on pace for their biggest weekly gains since March 2022.
BNN Bloomberg reports that oil prices jumped after Iran launched “a new wave of attacks against Israel, American bases and countries around the region,” raising concerns about how long disruptions to regional oil and natural gas production and transport will last.
BNN Bloomberg highlight the Strait of Hormuz, where roughly a fifth of the world’s oil typically sails through a narrow waterway off Iran’s coast.
Bloomberg says US stocks slid in a “turbulent session” as widening strikes in Iran and neighbouring countries prompted investors to reprice both the duration and impact of the conflict.
The S&P 500 closed 0.6 percent lower, the Nasdaq 100 fell 0.3 percent, and the Dow declined 1.6 percent and is now negative on the year.
Nearly three S&P 500 stocks fell for every one that gained and the Cboe Volatility Index hovered near 24.
On the rates side, BNN Bloomberg reports that the 10-year US Treasury yield rose to 4.13 percent from 4.09 percent late Wednesday and from 3.97 percent before the war with Iran started, as rising oil prices added upward pressure on inflation.
Bloomberg notes that traders have pushed their expectations for US Federal Reserve rate cuts further into the summer, and that the market is not pricing in a cut at the March 18 meeting.
For consumers, BNN Bloomberg says the average US gasoline price has already climbed to US$3.25 a gallon, up 9 percent from US$2.98 a week earlier, citing AAA.
Ashish Utarid, assistant vice-president of investment strategy with IG Wealth Management, told BNN Bloomberg that “the market can absorb a bit of an oil price increase, but if oil prices were to double, from US$60 a barrel to US$120 a barrel, that creates significant drag on the consumer.”
He said that if higher prices are sustained for months, the economic impact would be “significant,” but characterized the current move as a “short-term hit to consumption cost inflation” unless it continues.
Sector splits are already visible.
BNN Bloomberg reports that American Airlines lost 5.4 percent, United Airlines fell 5 percent, and Delta Air Lines dropped 3.9 percent as higher oil costs and the war left hundreds of thousands of passengers stranded across the Middle East.
The Russell 2000 index of smaller US companies fell 1.9 percent, which BNN Bloomberg notes is typical when worries about economic strength and rising rates grow.
In contrast, technology was the only sector in positive territory on the S&P/TSX composite, while gains in Big Tech and oil producers have helped limit the S&P 500’s weekly drop to 0.7 percent.
The shock is also showing up in Asia.
CNBC reports that South Korea’s Kospi index plunged as much as 12 percent on Wednesday, its largest single-day drop on record, then rebounded nearly 10 percent the next session, its best day since 2008, before trading more than 1 percent lower on Friday.
CNBC attributes the “whipsaw” to the global risk-off mood, the market’s concentration in SK Hynix and Samsung Electronics, which together account for about one-third of the Kospi’s market capitalization, and heavy use of leverage by retail investors that has driven margin calls and forced selling.
