Stan Choe
Updated ,first published
A selloff for stocks has slammed into Wall Street after wrapping around the world, as oil prices leaped even higher on worries about the widening war with Iran. But the big moves that rocked US shares in early trade eased substantially as the session went on.
By the end of trading, the S&P 500 had sunk 0.9 per cent. That would be a solid loss on a typical day, but the index had been down as much as 2.5 per cent because of concerns the war may do more sustained damage to the global economy than feared. The Dow Jones Industrial Average dropped 403 points, or 0.8 per cent, after plunging more than 1200 points earlier in the day. The Nasdaq composite pared its loss to 1 per cent.
The Australian sharemarket is bracing for heavy falls again this morning, with futures pointing to a loss of 124 points, or 1.4 per cent, at the open to push the S&P/ASX 200 below the 9000 mark. The ASX lost 1.3 per cent on Tuesday. The Australian dollar was trading at US70.42¢ at 8.44am AEDT.
It was just a day ago that Wall Street had opened with sharp losses, only to recover all of them and end the day with slight gains. Helping to drive that rebound was a record showing that past wars and conflicts in the Middle East have not usually meant long-term pain for US stocks.
But that was with the caveat that oil prices did not jump too high, like above $US100 per barrel. On Tuesday, oil prices rose again and raised more alarms. The price for a barrel of Brent crude, the international standard, briefly leaped above $US84.
The jump lessened through the day, though, which helped moderate the losses for stocks. Brent settled at $US81.40, up 4.7 per cent. That’s up from below $US70 less than a week ago. A barrel of benchmark US crude rose 4.7 per cent to $US74.56.
The moves showed oil prices, and how much they’re set to worsen inflation, are among the central fears for investors. More expensive fuel will mean less money for households to spend. It would also raise expenses for companies worldwide, which would likewise hurt their profits. And corporate profits are the lifeblood of stock markets.
The latest climb for oil prices came after Iran struck the US Embassy in Saudi Arabia, part of a widening of targets that also includes areas critical to the world’s oil and natural gas production. Worries are particularly high about the Strait of Hormuz off the coast of Iran, a narrow passageway where roughly a fifth of the world’s oil passes.
“The Strait of Hormuz is closed,” declared Iranian Brigadier General Ebrahim Jabbari, an adviser to the paramilitary Revolutionary Guard, vowing that any ships that passed through it would be set on fire.
The fears about oil prices ebbed a bit later in the day as President Donald Trump said the US Navy could begin escorting tankers through the strait, “if necessary,” to “ensure the FREE FLOW of ENERGY to the WORLD.”
Making things uncertain for markets are rising questions about how long this war may continue.
A major attack by the United States and Israel has already killed Iranian Supreme Leader Ayatollah Ali Khamenei, but President Donald Trump said late Monday night on his social media network, “Wars can be fought ‘forever,’ and very successfully” with the supply of munitions that the United States possesses.
Some professional investors said again that this doesn’t look like the beginning of a long-term down market and that stocks could rebound if the war doesn’t last that long, though they acknowledge it could take a while for that to become clear, and the swings for markets show how uncertain things are.
Tuesday’s sell-off started in Asia, where the Kospi stock index in South Korea, a big energy importer, plunged 7.2 per cent as markets reopened after a holiday on Monday. That was its worst day since two summers ago, and it had been setting records recently.
Tokyo’s Nikkei 225 dropped 3.1 per cent, even as analysts said Japan has a sizable stockpile lasting more than 200 days. In Europe, where prices for natural gas have soared because of the war, France’s CAC 40 lost 3.5 per cent.
In the meantime, the jump for oil prices will worsen inflation, which still remains high, and put more pressure on households and businesses by raising bills for petrol and to ship products.
That has the damage in stock markets so far centred on companies and countries that use a lot of oil, natural gas and petroleum-based fuels.
On Wall Street, nearly three out of every four stocks within the S&P 500 dropped. Unlike a day before, influential Big Tech stocks weren’t able to prop up indexes, and Nvidia fell 1.3 per cent.
Among the winners on Wall Street was Target, which rose 6.7 per cent after the retailer reported a better profit for the latest quarter than analysts expected.
In the bond market, Treasury yields leaped in the morning with worries about inflation. The yield on the 10-year Treasury briefly rose above 4.10 per cent before pulling back just below 4.06 per cent. It just 3.97 per cent on Friday, the last trading day before the war began.
Higher yields can make it more expensive for US households and businesses to borrow money, affecting everything from mortgages to bond issuances. They also weigh down prices for stocks and all kinds of other investments.
When Treasurys are paying more in interest, they can also undercut the price of gold, which pays its investors nothing. Gold fell 3.5 per cent on Tuesday to settle at $US5123.70 per ounce, halting a strong run that had taken it above $US5300 as investors looked for safer places to park their money.
High inflation could also tie the Federal Reserve’s hands and keep it from cutting interest rates. The Fed lowered rates several times last year and indicated more cuts were to come in 2026. That would help boost the US economy and job market, but lower rates can also worsen inflation.
Traders are now pushing back their forecasts further into the summer for when the Fed could resume cutting rates, according to data from CME Group. That’s even though Trump has been calling for Fed officials in angry and personal terms to cut rates now.
AP
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