Geopolitical tensions in the Middle East have driven Brent crude oil prices above $100 per barrel, reaching $100.87, representing a 7.2% increase. This surge in oil prices is impacting businesses by raising costs and reducing customer spending power, contributing to broader market declines. Gasoline prices have also risen to an average of $4.09 per gallon across the U.S., up from $3.93 a month ago, further fanning inflation worries. The significant increase in oil prices has pushed the yield of the 10-year Treasury up to 4.70%, the highest it has been in nearly a year, subsequently driving up long-term U.S. mortgage rates.
The U.S. stock market experienced sharp declines, with the S&P 500 falling 1.4% and heading towards its first back-to-back weekly loss since March. The Dow Jones Industrial Average was down 1% (546 points), and the Nasdaq composite was 2.6% lower. Companies with high fuel bills, such as American Airlines and Southwest Airlines, saw their stocks fall by 7.8% and 4% respectively, despite reporting better-than-expected profits, as investors worried about increased expenses.
Technology stocks also faced pressure. Alphabet, Google's parent company, saw its stock drop 7% despite reporting stronger-than-expected profit and revenue. Investors were reportedly concerned about the company's increased capital spending forecast for AI investments, which doubled to nearly $45 billion last quarter. Tesla tumbled 13.7% after reporting weaker-than-anticipated profits, dragging down the S&P 500 due to its large market capitalization. The overall market is grappling with the possibility that the Federal Reserve might raise interest rates due to escalating inflation concerns, with traders now pricing in a 36% chance of a rate hike at the Fed's next meeting, up from 12% a week ago.
