NEW YORK (AP) — Oil prices leaped Monday on worries that war with Iran could clog the global flow of crude and make inflation even worse. U.S. stocks, meanwhile, swung between sharp losses and small gains.
Crude prices jumped more than 6%, which will likely mean higher prices soon at gasoline pumps. That would hurt not only U.S. households, whose spending makes up the bulk of the U.S. economy, but also businesses with big fuel bills.
The S&P 500 fell
as much as 1.2% at the start of trading, and cruise lines and airlines led the way lower. But U.S. stocks quickly erased those losses, in part because past military conflicts have historically not created sustained drops for the market, and the index was up by 0.3% in late trading.
The Dow Jones Industrial Average was up 32 points, or 0.1%, with roughly an hour remaining in trading, and the Nasdaq composite was 0.6% higher.
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 war. Gold climbed 1.2% as investors looked for safer things to own and as U.S. officials tried to persuade the world that this war 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 war 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 there. A barrel of benchmark U.S. crude rose 6.3% to settle at $71.23 per barrel Monday. Brent crude, the international standard, climbed 6.7% to settle at $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 flowing 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.
United Airlines fell 3.1%, and American Airlines lost 4.2%.
Norwegian Cruise Line Holdings dropped even more, 11.6%. It needs customers to have plenty of cash to spend after paying for their gasoline bills 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%, and paint company Sherwin-Williams fell 1.6%.
Helping the U.S. stock market to reverse its early losses were oil companies, which benefited from the rising price of crude. Exxon Mobil climbed 1.1%, and Marathon Petroleum rose 5.2%.
Companies that make equipment for the military also strengthened. Northrop Grumman climbed 4.9%, and RTX rallied 4.8%.
Palantir Technologies, whose software helps global defense agencies, jumped 5.8% for one of the biggest gains in the S&P 500.
Big Tech stocks also helped support the market. Nvidia rose 3% and was the strongest single force pushing the S&P 500 higher.
In stock markets abroad, indexes fell 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 than economists expected last month also helped to lift yields.
___
AP Business Writers Matt Ott and Elaine Kurtenbach contributed.
