Stock market ends sharply lower as Israel-Iran clash. Oil prices surge
U.S. stocks closed lower after sales accelerated late in the day and oil prices climbed higher as fighting between Israel and Iran escalated and Iran pulled out of the next round of nuclear talks with the U.S.
The blue-chip Dow slid 1.79%, or 769.83 points, to 42,197.79; the broad S&P 500 dropped 1.13%, or 68.29 points, to 5,976.97, falling below the key psychological 6,000-level; and the tech-laden Nasdaq shed 1.3%, or 255.66 points, to 19,406.83. The benchmark 10-year Treasury yield inched up to 4.413%.
Overnight, Israel launched airstrikes against Iran. Israel’s defense minister Israel Katz declared a special state of emergency following the attack. Iran launched retaliatory drone strikes on Israel. Israel said it was ready for more, and it has planned out 14 days of operations.
Iranian state media said the head of Iran’s Revolutionary Guard Corps, Hossein Salami, and several other high profile military figures, and top nuclear scientists, have been killed in the attacks. Local media also said Iran will not participate in the sixth round of nuclear negotiations with the U.S. planned for this weekend, ratcheting up odds that the clash may worsen, analysts said.
Oil prices jumped more than 7% on fears supply will be disrupted due to the conflict. Greek and British maritime officials advised merchant ships to avoid the Strait of Hormuz, but the critical oil passage way remains open.
Gold climbed to a record high for the 25th time this year and the U.S. dollar rose as investors flocked to safer assets.
"Iran has begun to retaliate and will continue to do so," said Jeff Buchbinder, chief equity strategist at LPL Financial. "This phase of the conflict will likely last several weeks at least. Questions about what’s next for Iran will likely go unanswered for some time."
President Donald Trump urged Iran to negotiate a nuclear deal. "There has already been great death and destruction, but there is still time to make this slaughter, with the next already planned attacks being even more brutal, come to an end," he wrote in a social media post.
Secretary of State Marco Rubio made clear the U.S. wasn't involved in the strikes on Iran, but Trump told the Wall Street Journal he was aware of the planned attacks.
Before the attack, all three major indexes were on track for weekly gains, lifted by tame inflation data and renewed optimism for artificial intelligence after Oracle's quarterly results topped estimates. The software company also issued a positive outlook.
That was enough to overcome a slump in Boeing shares after one of its Dreamliners crashed in India. All but one person on the flight died.
Keep an eye on oil prices
If the Israel-Iran conflict causes oil prices to continue surging, inflation will jump and consumers will pay the price. The price of oil makes up about half the price of a gallon of gas, so one of the first things to be affected by rising oil prices would be prices at the pump.
But oil also affects the cost of producing things and transporting them to your local store, so even consumers who don’t drive or use public transportation will eventually feel the squeeze of more expensive oil one way or another.
So far, "at least, Israel has not directly targeted Iran’s oil supply, which appears to be unaffected," said Matthew Ryan, head of market strategy at global financial services firm Ebury. "The big fear for investors is that an escalation to the tensions will not only raise the risk of a prolonged conflict, but it could disrupt Iranian oil production."
Natasha Kaneva, head of global commodities research at JP Morgan, said she sees a "17% probability of a worst-case scenario" that oil prices would spike exponentially. However, she estimates that $120 per barrel oil could push the annual inflation rate up to 5%, more than double May's 2.4%.
An inflation surge could also prevent the Federal Reserve from cutting rates further, economists said.
"Fed officials will be spooked and their risk aversion will increase, which means that monetary policy will probably remain restrictive for a longer period of time," said Raymond James chief economist Eugenio Aleman.
Trade news
Trade news continues to worry some investors after Trump said he might raise the 25% tariff on imported vehicles to encourage more investment in U.S. manufacturing.
Corporate news
- Adobe's results in the second quarter of the company's fiscal year topped estimates. The software company also raised its third-quarter outlook above Street forecasts. Shares dropped 5.32%.
- RH swung to a quarterly profit and beating analysts' estimates, despite tariff uncertainty and a shaky housing market. Shares jumped 6.87%.
Cryptocurrency
Walmart, Amazon and Expedia have recently explored whether to issue their own stablecoins in the U.S., the Wall Street Journal reported. Their final decisions would depend on a bill, called the Genius Act, which would begin to establish a regulatory framework for stablecoins, the story said.
Stablecoins could save the merchants money, including the interchange fee they pay when customers make purchases using their cards, and receive payments faster, the WSJ said.
Bitcoin was last down 0.74% at $105,120.00.
(This story was updated with new information.)
Medora Lee is a money, markets, and personal finance reporter at Paste BN. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.