Stocks fell on Wednesday, with the Dow down 400 points, as oil prices returned to higher levels.
The blue-chip index pared losses, sliding nearly 1% to 47,339, and the Nasdaq composite was 0.2% lower. The S&P 500 fell 0.4%, coming off a rare day of modest moves following the expansion caused by the war with Iran.
Since the start of the war, extreme movements in oil prices have caused sharp ups and downs in financial markets around the world, sometimes on an hourly basis.
Oil prices rose briefly to their highest levels since 2022 this week on the possibility that production in the Middle East could be curbed for a long time, which also raised concerns about rising inflation that is eroding the global economy.
The International Energy Agency said on Wednesday that its members will release a record amount of oil, 400 million barrels, from the emergency peaks.
Such measures reduce oil prices in the near term, but it is possible that a complete resumption of oil and natural gas flows from the Persian Gulf region will ease the market. That’s why investors around the world are eagerly awaiting the end of the war.
The price of a barrel of Brent crude, the international standard, rose 4.4% to $91.68. A barrel of benchmark US crude gained 5% to $87.58.
Concerns center around the Strait of Hormuz, a narrow waterway off the coast of Iran through which a fifth of the world’s oil moves on a typical day. The war has stopped most of those vehicles, which means that the oil storage tanks are full in the area because the oil has nowhere else to go. That in turn pressures oil producers to cut their production.
The United States said it had taken out more than a dozen Iranian minesweepers on Tuesday, and the Islamic Republic vowed to block oil shipments to the region, saying it would not allow “even one liter” to be sent to its enemies.
All of this happened at a time when inflation was at an all-time high in the United States. A report released Wednesday showed that American consumers paid prices for groceries, gasoline and other living expenses that were 2.4% higher in February than a year ago.
To be sure, that rate of inflation was the same as last month and better than the 2.5% economists were expecting, but still above the Federal Reserve’s 2% target for the economy. It does not include the increase in fuel prices that occurred this month due to the war.
“Looking ahead, we expect inflation to pick up in the spring due to rising energy prices associated with the Iran war, a period that will mark the point where inflation will hit by the end of the year,” according to Gary Schlossberg, global strategist at the Wells Fargo Investment Institute.
High inflation combined with a stagnant economy can create a serious situation called “stagflation” that the Federal Reserve has no good tools to correct. Stagflation fears are rising not only because of high oil prices but also because of weak employment by American employers.
On Wall Street, many stocks fell. Campbell’s sank 7.9% after the soup company reported less profit in the latest quarter than analysts had expected. It was hurt by the struggles of its snacks business, and it cut its revenue and profit forecasts for this financial year.
Helping limit Wall Street’s losses was Oracle, which jumped 9.6%. The tech giant reported stronger profit and revenue for the latest quarter than analysts expected. It also raised its revenue growth forecast for the next fiscal year, in part due to demand for cloud computing for artificial intelligence training and observation.
