NEW YORK (AP) — Stock markets worldwide are sinking on worries about whether the global economy can withstand spiking prices for oil, which briefly got to nearly $120 per barrel on Monday. But for as scary as the moves have been, they remain twitchy and quick to reverse amid all the uncertainty caused by the war with Iran.
The S&P 500 fell 0.5% after dropping as much as 1.5% in the morning. The Dow Jones Industrial Average was down 365 points, or 0.8%, as of 11:30 a.m. Eastern time, and the Nasdaq composite was 0.1% lower. That followed worse losses in European and Asian stock markets.
Since the war with Iran began with attacks by the United States and Israel, the central worry for financial markets has been how high oil prices will go because of it and how long they will stay there. Early Monday, the price for a barrel of Brent crude, the international standard, briefly touched $119.50. It hasn’t been that expensive since the summer after Russia invaded Ukraine in 2022, another military conflict that likewise raised the risk for blockages in the global flow of oil.
If oil prices stay very high for very long, households’ budgets already stretched by high inflation could break under the pressure. Companies, meanwhile, would see their own bills jump for fuel and to stock items on their store shelves or in their data warehouses. It all raises the possibility of a worst-case scenario for the global economy “stagflation,” where growth stagnates and inflation remains high.
To be sure, oil prices quickly pared their huge gains Monday. A barrel of Brent crude pulled back to $99.26, though that’s still up 7.1% from Friday.
A barrel of benchmark U.S. crude, meanwhile, rose 5.4% to $95.81 after briefly spiking as high as $119.48.
The U.S. stock market has a history of bouncing back relatively quickly from past military conflicts, such as Russia’s invasion of Ukraine in 2022, as long as oil prices don’t stay too high for too long. And even with all the recent swings in the market, the S&P 500 index that sits at the heart of many 401(k) accounts is still within 4% of its record set in January.
Some professional investors continue to suggest that drops in prices for stocks could ultimately offer opportunities to buy them at cheaper levels before they rise again. Monday’s quick paring of losses for U.S. stocks was similar to the huge swings that rocked Wall Street last week, with everything keying off changes in oil prices.
“We continue to believe that the current acute shortage of oil will be reversed in the coming months as new supply comes online and oil should drop significantly,” according to Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute.
