United States benchmark averages retreated on Thursday (Friday AEDT) as a sharp surge in oil prices and escalating tensions in the Middle East weighed heavily on investor sentiment.
The Dow Jones Industrial Average dropped 739.4 points, or 1.6%, to finish at 46,677.9. The S&P 500 declined 103.2 points, or 1.5%, to close at 6,672.6, while the Nasdaq Composite fell 404.2 points, or 1.8%, ending the session at 22,312.0.
All three major indices closed at their lowest levels of the year so far.
The sell-off came as crude oil prices surged amid fears that the ongoing conflict involving Iran could severely disrupt global energy supplies.
Oil markets continued to climb after Iran’s newly appointed Supreme Leader, Mojtaba Khamenei, said the Strait of Hormuz should remain closed as a “tool to pressure the enemy”. The strategic waterway is one of the world’s most critical energy shipping routes, and any prolonged disruption threatens global oil flows.
West Texas Intermediate futures jumped 9.7% to settle at US$95.73 per barrel, while Brent crude rose 9.2% to close at $100.46 per barrel - its first settlement above the $100 level since August 2022.
Energy Secretary Chris Wright told CNBC that the U.S. Navy is currently “not ready” to escort oil tankers through the Strait of Hormuz but may be able to do so by the end of the month.
The situation deteriorated further overnight after authorities reported that three additional foreign vessels were struck in the Persian Gulf.
The incidents followed attacks on three other ships on Wednesday, including one located in the Strait of Hormuz.
Meanwhile, the administration of U.S. President Donald Trump has reportedly instructed domestic oil companies and shipping firms to prepare for a possible waiver of the century-old Jones Act, which regulates shipping between U.S. ports.
The potential move is aimed at easing logistical constraints and limiting the rise in domestic fuel prices.
In an effort to counter the supply shock, the International Energy Agency (IEA) on Wednesday (Thursday AEDT) agreed to a coordinated release of 400 million barrels of crude oil from strategic reserves.
Investors are also looking ahead to the upcoming Federal Reserve policy meeting scheduled for 17 March. While recent inflation data has indicated that price pressures are moderating, the sharp rise in energy costs stemming from the 13-day conflict has yet to be reflected in official economic data.
According to the CME Group FedWatch Tool, there is a 99.2% chance that Fed officials will hold interest rates steady at their next meeting.
Market participants will also be closely watching the updated Summary of Economic Projections for any revisions to inflation forecasts.
Concerns about credit markets also surfaced during the session. Swiss private equity firm Partners Group warned that default rates in the rapidly growing private credit sector could double over the coming years amid tighter financial conditions.
Large U.S. banks also signalled caution. Morgan Stanley limited redemptions at one of its private credit funds, while JPMorgan Chase reduced the valuation of some loans tied to private credit funds.
Shares in Morgan Stanley fell 4.1%, while JPMorgan slipped 1.6%.
In a separate development, Federal Reserve Vice Chair for Supervision Michelle Bowman outlined proposed regulatory adjustments that would ease requirements governing the amount of capital banks must hold against potential losses.
Corporate movers provided some pockets of volatility during the session. Dating app operator Bumble surged 34.2% after issuing fourth-quarter revenue guidance that exceeded market expectations.
Conversely, discount retailer Dollar General fell 6.1% after the company issued a weaker-than-expected outlook for annual comparable sales.
Investors are now turning their attention to Friday’s slate of economic data releases, which includes consumer sentiment, durable goods orders, JOLTS job openings and labour turnover figures, as well as the personal consumption expenditures report - the Federal Reserve’s preferred gauge of inflation.
Bond markets also reflected rising risk concerns, with yields moving higher across the curve. The yield on the 10-year U.S. Treasury rose 0.9% to 4.265%, while the two-year yield climbed 2.6% to 3.747%.
