U.S. stocks erase sharp losses, while oil prices leap on worries about Iran war

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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 from sharp losses to a tiny gain.

Crude prices jumped more than 6 per cent, 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 per cent 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 haven’t usually created sustained drops for the market, and the index finished the day with a gain of less than 0.1 per cent.

The Dow Jones Industrial Average dipped 73 points, or 0.1 per cent, and the Nasdaq composite rose 0.4 per cent. Both also came back from steep early losses.

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 per cent 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 US$100 per barrel, according to strategists at Morgan Stanley led by Michael Wilson.

Oil prices are still well below that level, even with Monday’s jump. The price for a barrel of benchmark U.S. crude rose 6.3 per cent to settle at US$71.23. Brent crude, the international standard, climbed 6.7 per cent to US$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 per cent, 6 per cent and 8 per cent 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 running 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.

American Airlines lost 4.2 per cent, United Airlines fell 2.9 per cent and Delta Air Lines sank 2.2 per cent.

Norwegian Cruise Line Holdings dropped even more, 10.6 per cent. It needs customers to have plenty of cash to spend after paying for gasoline 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 3.7 per cent, and Builder FirstSource sank 4.7 per cent.

Helping the U.S. stock market to bounce back from its early losses were oil companies, which benefited from the rising price of crude. Exxon Mobil climbed 1.1 per cent, and Marathon Petroleum rose 5.9 per cent.

Companies that make equipment for the military also strengthened. Northrop Grumman climbed 5.9 per cent, and RTX rallied 4.7 per cent.

Palantir Technologies, whose software helps global defense agencies and other customers, jumped 5.8 per cent for one of the biggest gains in the S&P 500.

Big Tech stocks also helped support the market. Nvidia rose 2.9 per cent and was the strongest single force pushing the S&P 500 higher.

All told, the S&P 500 added 2.74 points to 6,881.62. The Dow Jones Industrial Average dipped 73.14 to 48,904.78, and the Nasdaq composite rose 80.65 to 22,748.86.

In stock markets abroad, indexes sank across much of Europe and Asia. Germany’s DAX lost 2.6 per cent, France’s CAC 40 fell 2.2 per cent and Hong Kong’s Hang Seng dropped 2.1 per cent for some of the world’s larger losses.

Stocks in Shanghai were an outlier and rose 0.5 per cent.

In the bond market, the yield on the 10-year Treasury rose to 4.04 per cent from 3.97 per cent late Friday. A report showing growth for U.S. manufacturing was better last month than economists expected also helped to lift yields.

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Stan Choe, The Associated Press. AP Business Writers Matt Ott and Elaine Kurtenbach contributed.