Brent oil shot to its highest price since May after increased fighting in the Middle East on Thursday threatened to slow the global flow of crude. At the same time, sharp drops for two of Wall Street's most influential companies, Alphabet and Tesla, yanked the U.S. stock market to its worst loss in a month.
The S&P 500 fell 1.2% and is on track for its first back-to-back weekly loss since March. The Dow Jones Industrial Average dropped 506 points (1%) and the Nasdaq composite sank 2.2%.
Rising oil prices makes stocks fall under pressure which raise costs for businesses and erode their customers' ability to spend. The price for a barrel of Brent crude oil, the international standard, jumped 7% to settle at $100.69. It touched $102 during the day, the highest price since May for the most actively traded Brent contract in the market because of attacks on two Saudi oil tankers in the Red Sea that threatens another avenue that oil companies use to move their crude from the Middle East to customers worldwide, along with the Strait of Hormuz.
Gasoline prices tend to follow oil prices higher and a gallon of regular costs an average of $4.09 across the United States, according to AAA. That's still below highs of roughly $4.56 in May, but it was at just $3.93 a month ago.
Emphasizing the importance of the sea route for the economy, President Donald Trump threatened 'major military punishment' against the Houthi rebels in Yemen who are backed by Iran if they keep attacking ships. It was just a few weeks ago that Brent had dropped below $72 per barrel, roughly back to where it was before the United States and Israel attacked Iran to begin their war, on hopes that a wind-down in the war would fully reopen the Strait of Hormuz.
The European Central Bank held its main interest rates steady at its meeting Thursday. But traders are betting on a 36% chance the Fed will hike the federal funds rate at its meeting next week. That's up from the nearly 12% probability seen a week ago, according to data from CME Group. An increase by the Fed would be the first since 2023.
Higher oil prices pushed the yield of the 10-year Treasury up to 4.69% from 4.67% late Wednesday and from just 3.97% before the war with Iran began. That's a significant increase and it's already brought long-term U.S. mortgage rates to their highest levels in nearly a year.
On Wall Street, stocks of companies with big fuel bills fell to sharp losses on worries about higher expenses. American Airlines fell 8.4% even though it reported a much bigger profit for the spring than analysts expected, something that usually sends a stock's price higher. It raised airfares, which helped it offset its higher fuel prices, during the latest quarter.
Southwest Airlines lost 6.2%, even though it also reported better profit and revenue than analysts expected. Tesla tumbled 14.5% after Elon Musk's electric-vehicle company reported a weaker profit for the latest quarter than analysts expected. Alphabet fell 7.1% even though the parent company of Google delivered stronger profit and revenue than analysts expected. CEO Sundar Pichai said AI helped its cloud revenue growth accelerate to 82% last quarter but remains about whether all the money going into AI will pay off in terms of productivity and profits. Such worries have been shaking the AI industry broadly in recent weeks, leading to big swings for the overall stock market.
In stock markets abroad, indexes fell sharply in Europe after oil prices jumped. France's CAC 40 dropped 1.6% for one of the larger losses. Indexes in Asia were stronger earlier in the day, and South Korea's Kospi jumped 4.4%.
The yield on the 10-year U.S. Treasury note ' the key benchmark for mortgage and auto loans and credit card debt ' was last seen up more than 4 bps at 4.69%. It earlier rose above 4.7%, hitting the highest level since 15 January, 2025 before the start of President Donald Trump's second term.
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