NEW YORK (AP) – Oil prices rose Monday on concerns that a war with Iran could block the global flow of pollution and make inflation worse. Meanwhile, US stocks swung from heavy losses to small gains.
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Crude prices are up more than 6%, which will likely mean higher prices in the near term at the petrol pumps. That would hurt not only US households, which make up the bulk of the US economy, but also businesses with large fuel bills.
The S&P 500 fell as much as 1.2% in early trading, and airline stocks led the way lower. But US stocks quickly erased those losses, in part because past military conflicts have not often produced strong market drops, and the index ended the day with a gain of less than 0.1%.
The Dow Jones Industrial Average sank 73 points, or 0.1%, and the Nasdaq composite rose 0.4%. Both have come back from the brink of early losses.
Natural gas prices remained high, however, which could push up heating bills for the rest of the winter, after Europe’s biggest liquefied gas supplier said it would halt production because of the war. Gold rose 1.2% as investors sought safe-haven assets and as US officials tried to convince the world that this war would not last forever.
“This is not Iraq,” US Defense Secretary Pete Hegseth said Monday. “This never ends.”
Usually, Treasury yields also fall in the bond market when investors are feeling nervous. But yields are instead higher, in part because higher oil prices put a higher premium on inflation, which is already worse than anyone would like. That could tie the hands of the Federal Reserve and keep it from cutting interest rates.
Lower interest rates can boost the economy and the labor market, but they also increase inflation. High prices can make a difference.
The military conflict in the Middle East did not cause a long-term fall in the markets. For this war to bring down US stocks in a significant and sustainable way, the price of oil would need to rise above $100 per barrel, according to Morgan Stanley analysts led by Michael Wilson.
SEE: War with Iran | PBS News Special Report
Oil prices are still below that level, despite Monday’s jump. The price of a barrel of benchmark US crude rose 6.3% to settle at $75. Brent crude, the international benchmark, rose 6.7% to $77.74 a barrel.
That helped the US stock market on some of the steepest, opening losses. Morgan Stanley also said that the S&P 500 rose an average of 2%, 6% and 8% in one, six and twelve months following “geopolitical risk events”. This goes back to the Korean War, which began in 1950, and the Suez crisis of 1956.
At this time, however, fear is still moving through the markets.
Airline stocks were among the biggest losers on Monday. Not only do high oil prices threaten their already huge fuel bills, the fighting in the Middle East has also closed airports and left travelers stranded.
American Airlines lost 4.2%, United Airlines fell 2.9% and Delta Air Lines sank 2.2%.
Norwegian Cruise Line Holdings increased to 10.6%. It requires consumers to have more spending money after paying for gas and other essentials.
The shipper also reported lower revenue for its latest quarter than analysts expected, although profit was better. Its profit forecast for this coming financial year was also lower than analysts’ expectations.
Stocks in the housing industry struggled as higher Treasury yields could translate into higher mortgage rates. Homebuilder DR Horton lost 3.7%, and Builder FirstSource sank 4.7%.
Helping the US stock market recover from its early losses were oil companies, which benefited from rising crude prices. Exxon Mobil rose 1.1%, and Marathon Petroleum rose 5.9%.
Companies that manufacture military equipment have also been established. Northrop Grumman rose 5.9%, and RTX added 4.7%.
Palantir Technologies, the software that helps global defense agencies and other customers, jumped 5.8% to one of the biggest gains in the S&P 500.
Big Tech stocks also helped support the market. Nvidia rose 2.9% and was the single strongest force pushing the S&P 500 higher.
All told, the S&P 500 added 2.74 points to 6,881.62. The Dow Jones Industrial Average sank 73.14 to 48,904.78, and the Nasdaq composite rose 80.65 to 22,748.86.
In the stock markets abroad, the indexes sank in many parts of Europe and Asia. Germany’s DAX lost 2.6%, France’s CAC 40 fell 2.2% and Hong Kong’s Hang Seng fell 2.1% for the world’s biggest losses.
Shares in Shanghai were flat and rose 0.5%.
In the bond market, the yield on the 10-year Treasury rose to 4.04% from 3.97% late Friday. A report showing US manufacturing growth was better last month than economists expected also helped lift yields.
AP Business Writers Matt Ott and Elaine Kurtenbach contributed.
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