The market is really trying to grapple with how long this conflict will last
Six days into a Middle East conflict, global markets were forced to reckon Thursday with a truth as old as industrial civilization: the price of oil is the price of everything. Crude surged 8.5 percent on fears that the Strait of Hormuz — the narrow throat through which the world's energy flows — could be choked off, and that single fact rewrote inflation expectations, Federal Reserve calculations, and the fortunes of entire industries before the closing bell. The event is not merely a market story but a reminder of how fragile the architecture of modern prosperity remains when geography and conflict intersect at a chokepoint.
- A six-day-old Middle East conflict has sent oil to $81 a barrel — its highest since July 2024 — as missile and drone threats slash tanker traffic through the Strait of Hormuz and traders brace for a potential blockade.
- The Dow shed nearly 785 points, airlines cratered 5.4 percent, and industrials, materials, and healthcare each fell more than 2 percent as higher fuel costs and inflation fears cascaded across the market.
- Energy and technology bucked the selloff — Chevron rose 3.9 percent and Broadcom surged 4.8 percent on AI chip projections — creating a stark internal divide that kept the Nasdaq barely afloat.
- Markets have already trimmed Fed rate-cut expectations from 50 to 40 basis points this year, and the real fear is whether oil climbs to $100 a barrel — a level strategists say would genuinely unsettle the broader economy.
- Trading volume hit 22.32 billion shares, far above the 20-day average, signaling active repositioning as investors search for footing in a conflict whose duration — days, weeks, or months — remains entirely unknown.
The stock market stumbled Thursday as a six-day-old Middle East conflict sent oil prices surging and forced traders to recalculate the odds of Federal Reserve rate cuts. The logic was direct: higher energy costs stoke inflation, and inflation gives the Fed less reason to ease. That anxiety spread across nearly every sector.
U.S. crude jumped 8.5 percent to $81 a barrel — its highest since July 2024 — while Brent rose to $85.41. The fear centered on the Strait of Hormuz, where missile and drone threats had already cut tanker traffic sharply. A prolonged disruption could simultaneously choke supply, push prices higher, and slow economic growth — the worst possible combination.
The Dow fell 784 points, or 1.61 percent. Airlines were hit hardest, tumbling 5.4 percent as fuel costs threatened margins directly. Industrials, materials, and healthcare each dropped more than 2 percent. Energy stocks moved the other way — Chevron gained 3.9 percent — and technology held firm, lifted by Broadcom's projection that AI chip revenue would exceed $100 billion next year.
"Look at oil today, it tells you everything you need to know about why the stock market's down," said Michael Antonelli of Baird Private Wealth Management. The deeper problem was uncertainty: nobody knew whether the conflict would last days or months, or whether oil would breach the psychologically significant $100-a-barrel threshold.
Stronger-than-expected labor market and manufacturing data offered little comfort — a resilient economy also means fewer rate cuts. Markets had priced in roughly 50 basis points of Fed easing before the conflict; by Thursday that had fallen to 40. Trading volume hit 22.32 billion shares, well above recent averages, reflecting active repositioning. The market's fragile balance — energy profits on one side, broader economic drag on the other — would hold only as long as oil stayed below $100 and some path toward resolution remained visible.
The stock market stumbled on Thursday as a six-day-old conflict in the Middle East sent oil prices climbing and traders scrambling to recalculate the odds of interest rate cuts. The worry was straightforward: higher energy costs feed inflation, and inflation makes the Federal Reserve less likely to lower rates. That uncertainty rippled through every sector except one.
U.S. crude jumped 8.5 percent to $81 a barrel, its highest point since July 2024. Brent crude, the global benchmark, rose 4.9 percent to $85.41. The driver was fear of disruption in the Strait of Hormuz, the narrow waterway through which much of the world's oil flows. Missile and drone threats had already cut tanker traffic sharply, and traders were bracing for worse. A prolonged blockade could choke off supply, push prices higher still, and slow economic growth even as inflation accelerated—the worst of both worlds.
The Dow Jones Industrial Average fell 784.67 points, or 1.61 percent, closing at 47,954.74. The S&P 500 dropped 0.56 percent to 6,830.71. The Nasdaq Composite slipped 0.26 percent to 22,748.99. Beneath those headline numbers lay a stark divide. Industrials, materials, and healthcare stocks each fell more than 2 percent. Airlines were hammered hardest: the sector tumbled 5.4 percent, with Southwest Airlines down 6.9 percent. The logic was brutal—higher fuel costs eat directly into airline margins.
Energy stocks, by contrast, climbed. Chevron gained 3.9 percent as traders bet on fatter profit margins from elevated oil prices. The S&P 500 energy index rose 0.6 percent overall. Technology stocks also held ground, rising 0.4 percent, buoyed by Broadcom's projection that its artificial intelligence chip revenue would exceed $100 billion next year. That strength in tech and energy was enough to keep the Nasdaq slightly positive since the conflict began, even as the broader market struggled.
Michael Antonelli, a market strategist at Baird Private Wealth Management, cut through the noise: "Look at oil today, it tells you everything you need to know about why the stock market's down. The market is really trying to grapple with how long this conflict will last." That uncertainty was the real problem. Nobody knew if this would be resolved in days or weeks or months. Nobody knew if oil would spike to $100 a barrel, a level that would genuinely unsettle investors.
The labor market data offered some counterweight. New unemployment claims held steady week-over-week. Manufacturing and services indicators both came in stronger than expected. That should have been good news—a resilient economy. But it also meant the Federal Reserve would have less reason to cut rates. Before the conflict, markets were pricing in roughly 50 basis points of rate cuts from the Fed this year. By Thursday, that had fallen to 40 basis points. Steve Ricchiuto, chief economist at Mizuho Securities, noted that stronger economic data typically would push rate-cut expectations lower anyway, but the market's reaction suggested traders were already discounting the news. "After today's selloff, I am less convinced that it's going to have the impact that I thought it would have," he said.
Trading volume on U.S. exchanges hit 22.32 billion shares, well above the 17.82 billion average of the previous 20 days, a sign of active repositioning. Wall Street had outperformed its European and Asian counterparts during the week, a small mercy driven mainly by technology stocks that had been battered in February. But that edge was fragile, dependent on oil prices staying below the psychological barrier of $100 a barrel and the conflict finding some path toward resolution. Until one of those things happened, the market would remain caught between the hope that energy stocks could profit from higher prices and the fear that those same prices would slow the broader economy.
Notable Quotes
Look at oil today, it tells you everything you need to know about why the stock market's down. The market is really trying to grapple with how long this conflict will last.— Michael Antonelli, market strategist at Baird Private Wealth Management
After today's selloff, I am less convinced that it's going to have the impact that I thought it would have. The market already pre-discounted it.— Steve Ricchiuto, chief economist at Mizuho Securities
The Hearth Conversation Another angle on the story
Why did airlines get hit so much harder than other sectors?
Fuel is their single largest operating cost. When oil jumps 8.5 percent in a day, that hits their bottom line immediately and visibly. Investors don't have to guess—they know Southwest's margins just got thinner.
But energy stocks went up. Doesn't that seem contradictory?
Not really. Energy companies make money when oil is expensive. Airlines spend money when oil is expensive. They're on opposite sides of the same price movement. The market was essentially betting that oil would stay elevated long enough for energy companies to benefit.
What's the real fear underneath all this?
Stagflation. Higher prices without growth. If the Strait of Hormuz stays disrupted, oil stays high, inflation stays high, and the Fed can't cut rates. Meanwhile, businesses slow down because their costs are rising. That's the nightmare scenario.
Why does the Fed cutting rates matter so much to the stock market?
Lower rates make borrowing cheaper, which makes future corporate earnings worth more in today's dollars. Investors had been counting on rate cuts to support stock prices. Now that's off the table, at least for a while.
The Nasdaq was actually up for the week despite all this. How?
Technology stocks, especially chip makers like Broadcom. They held up because their growth story—artificial intelligence—is independent of oil prices. When everything else is falling, investors cling to the one sector that seems to have its own momentum.
What are traders watching for now?
Two things: any sign the conflict is ending, and whether oil can be kept below $100 a barrel. If either happens, the selling pressure eases. If oil hits triple digits, all bets are off.