Brent crude oil surged to its highest level since May on Thursday due to escalating conflicts in the Middle East, raising concerns about disruptions in the global oil supply chain. Concurrently, U.S. stock markets experienced significant losses driven by steep declines in the shares of influential companies like Alphabet and Tesla.
The S&P 500 declined by 1.2%, potentially heading for its first consecutive weekly loss since March. Similarly, the Dow Jones Industrial Average slipped by 1% and the Nasdaq composite plummeted by 2.2%.
Rising oil prices exerted pressure on stocks as businesses face increased costs and consumers redirect their spending towards higher fuel prices. The price of Brent crude oil, a key benchmark, surged by seven percent to reach $100.69 per barrel. This spike, touching $102 at one point, was triggered by recent attacks on Saudi oil tankers in the Red Sea, threatening crucial oil transportation routes from the Middle East.
U.S. President Donald Trump warned of “major military punishment” against Houthi rebels in Yemen, who are allegedly backed by Iran, if ship attacks persist. The fluctuating oil prices could reignite inflation, potentially prompting central banks to raise interest rates, which might slow economic growth and impact stock prices.
The yield on the 10-year treasury bond rose to 4.69%, up from 4.67% the previous day and significantly higher than the 3.97% level prior to the Iran conflict. This increase has already pushed long-term U.S. mortgage rates to nearly year-long highs.
With oil price hikes, gasoline prices are also on the rise. The average price of gasoline in Canada stood at $1.802 per liter, slightly above the previous day’s average.
On the market front, companies heavily reliant on fuel witnessed substantial losses. American Airlines shares dropped by 8.4% despite reporting better-than-expected profits for the quarter. Southwest Airlines also saw a 6.2% decline, even with improved profit and revenue figures.
Tesla’s stock tumbled by 14.5% following weaker quarterly profits, overshadowing positive results from Google’s parent company, Alphabet, which saw a 7.1% decline. Investors expressed concerns over Alphabet’s increased spending on artificial intelligence investments and its impact on future productivity and profitability.
These uncertainties surrounding AI investments have contributed to market volatility in recent weeks, affecting broader market indices. Overseas, European markets experienced sharp declines as oil prices surged, with France’s CAC 40 index dropping by 1.6%. In contrast, Asian markets, including South Korea’s Kospi, showed strength earlier in the day.
The global financial landscape remains turbulent as geopolitical tensions and economic uncertainties continue to shape market movements.