Oil Prices Depress Stocks, End Notion of Interest Rate Cuts

Oil prices surged again Friday, rattling financial markets and wiping out investor expectations that the Federal Reserve might reduce interest rates this year.

The Dow Jones Industrial Average dropped 443.96 points, or about 1%, closing at 45,577.47. For the week, the index declined 2.1%.
The S&P 500 lost 100.01 points, a 1.5% fall, ending at 6,506.48 and finishing the week down 1.9%.
The Nasdaq Composite slid 443.08 points, or 2%, to close at 21,647.61, leaving it 2.1% lower for the week.

Energy prices were a major factor behind the market’s decline. Brent crude, the global benchmark, climbed 3.3% to settle at $112.19 per barrel. U.S. benchmark crude rose 2.3%, finishing at $98.32 per barrel.

Stocks were also pressured by rising yields in the bond market. When Treasury yields increase, borrowing costs for things like mortgages and business loans rise as well. That can slow economic activity and reduce the value of many investments.

Bond yields have been climbing amid concerns that the war with Iran could push oil and natural gas prices higher for an extended period, increasing inflation. As a result, traders have almost entirely abandoned expectations that the Federal Reserve will cut interest rates this year, according to data from CME Group. Some investors are even considering the possibility that the Fed might raise rates in 2026, an idea that seemed highly unlikely before the conflict began.

Ann Miletti of Allspring Global Investments said a rate increase would significantly shake the markets. However, she also noted that if oil prices remain elevated for a long time, the economic slowdown they cause could make it unlikely the Fed would raise rates.

Lower interest rates tend to support both economic growth and investment markets, and they are something President Trump has been strongly advocating.

Before the conflict began, traders widely expected the Federal Reserve to reduce rates at least twice this year.

Among individual companies, Super Micro Computer suffered one of the largest losses of the day. Its shares plunged 33.3%, erasing about a third of the company’s value. Federal authorities have accused one of the company’s senior vice presidents and two associates of plotting to smuggle billions of dollars’ worth of computer servers equipped with advanced Nvidia chips to China.

The market’s decline was broad. Nearly three-quarters of the companies in the S&P 500 ended the day lower. Smaller companies were hit especially hard, as they are often more sensitive to higher borrowing costs. The Russell 2000 index, which tracks smaller firms, fell 2.3%.

One of the few bright spots was FedEx. Its stock gained 0.8% after the company reported quarterly profits that were stronger than analysts had expected.

original source