NEW YORK (AP) — A sell-off for stocks is slamming into Wall Street Tuesday after wrapping around the world, as oil prices leap even higher with worries that the widening war with Iran may do more sustained damage to the economy than feared.
The S&P 500 dropped 1.6% in midday trading after falling as much as 2.5% in the morning. The Dow Jones Industrial Average was down 840 points, or 1.7%, as of 11:30 a.m. Eastern time, and the Nasdaq composite was 1.7% lower.
It was just a day ago that U.S. stocks opened with sharp losses, only to recover all of them and end the day with slight gains. But that was with the caveat that oil prices did not jump too high, like to more than $100 per barrel.
On Tuesday, oil prices soared again and raised more alarms. The price for a barrel of Brent crude, the international standard, leaped another 7.8% to $83.79. That's up from close to $70 less than a week ago. A barrel of benchmark U.S. crude, meanwhile, rose 7.6% to $76.63.
Oil prices made the jump as Iran struck the U.S. 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. That makes it crucial for the global flow of crude.
“The Strait of Hormuz is closed,” declared Iranian Brig. Gen. Ebrahim Jabbari, an adviser to the paramilitary Revolutionary Guard, vowing that any ships that passed through it would be set on fire.
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 Tuesday 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.
In the meantime, the jump for oil prices will worsen inflation, which still remains high, and put more pressure on U.S. households and businesses by raising bills for gasoline and to ship products. The average price for a gallon of gasoline in the U.S. jumped 11 cents overnight to about $3.11, according to data from motor club AAA.
That has the damage in stock markets so far centering on companies and countries that use a lot of oil, natural gas and petroleum-based fuels.
In South Korea, a big energy importer, the Kospi stock index plunged 7.2% for its worst day since two summers ago as markets reopened after a holiday on Monday. It had been setting records recently.
Tokyo's Nikkei 225 dropped 3.1%, even as analysts say Japan has a sizable stockpile lasting more than 200 days. In Europe, where prices for natural gas have soared because of the war, Germany's DAX lost 3.6%.
On Wall Street, stocks of airlines continued to sink on worries about rising fuel bills. The war has also led to canceled flights and stranded passengers.
American Airlines sank 3.1%, and United Airlines fell 2.4%.
Wall Street's losses were widespread, and nearly 90% of the 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 1.7%.
Among the few winners on Wall Street was Target, which rose 5.1% after the retailer reported a better profit for the latest quarter than analysts expected.
In the bond market, Treasury yields rose with worries about inflation. The yield on the 10-year Treasury rose above 4.10% in the morning before pulling back to 4.06%. That's up from 4.05% late Monday and from just 3.97% on Friday.
Higher yields can make it more expensive for U.S. households and businesses to borrow money, affecting everything from mortgages to bond issuances. They also put downward pressure on 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 3.4% Tuesday to $5,132.50 per ounce, halting a strong run that had taken it above $5,300 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 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.
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AP Business Writers Yuri Kageyama and Matt Ott contributed.
