Oil prices climbed to their highest levels since 2023 on Friday as the conflict involving Iran intensified, while a disappointing report on the U.S. job market pushed stocks lower and sealed Wall Street’s worst week since October.
The S&P 500 fell 1.3% after new data showed U.S. employers eliminated more jobs last month than they added. At the same time, oil prices surged past $90 per barrel. The combination of slowing economic growth and rising inflation is considered one of the most challenging scenarios for investors, largely because the Federal Reserve has limited tools to address both problems simultaneously.
The Dow Jones Industrial Average dropped sharply during the day, at one point falling by as much as 945 points before ending with a loss of 453 points, or 0.9%. The Nasdaq composite also declined, dropping 1.6%.
“You can’t sugarcoat this report,” according to Brian Jacobsen, chief economic strategist at Annex Wealth Management. “A negative payrolls number combined with a big jump in oil prices will have traders worrying about stagflation risks.”
Stagflation describes a difficult economic environment in which growth slows while inflation remains high. Concerns about this scenario deepened after a separate report released Friday showed U.S. retailers generated less revenue in January than economists had anticipated. The weaker retail performance raised worries that consumer spending, the main driver of the U.S. economy, could be approaching its limits.
Under normal circumstances, when the economy weakens and the labor market softens, the Federal Reserve typically lowers interest rates to stimulate economic activity. Reduced borrowing costs can make it easier for households to take out mortgages and for companies to raise capital for expansion, while also helping to support stock prices and other investments. The Fed reduced its benchmark interest rate several times last year and had previously suggested additional cuts might follow in 2026.
However, lowering rates can also fuel inflation. With oil prices rising sharply due to disruptions in the global energy market, the Fed may find its policy options increasingly constrained.
The price of Brent crude, the international benchmark for oil, jumped another 8.5% to settle at $92.69 per barrel. During trading, it briefly rose above $94, reaching its highest level since September 2023.
Benchmark U.S. crude also surged, climbing 12.2% to $90.90 per barrel and crossing the $90 mark for the first time since 2023.
Oil prices have risen rapidly from around $70 per barrel late last week as the conflict has expanded to areas critical to the production and transportation of oil and gas in the Middle East. A major concern for markets is the potential impact on the Strait of Hormuz, located off Iran’s coast, through which roughly one-fifth of the world’s oil supply normally passes.
The U.S. government on Friday provided additional details about a plan previously announced by President Donald Trump to offer insurance coverage for ships passing through the strait, though the announcement had little immediate impact on energy markets.
The effective closure of the Strait of Hormuz is “about as wrong as things could go” for global oil markets. Iran achieved it not with a naval blockade, but with cheap drones.
Analysts warn that if oil prices continue rising, potentially reaching $100 per barrel, and remain elevated for a prolonged period, the strain could become too much for the global economy.
Historically, U.S. financial markets have often recovered relatively quickly from geopolitical conflicts, including those in the Middle East, provided oil prices do not remain excessively high for extended periods. However, uncertainty surrounding how high prices may climb and how long disruptions may last triggered sharp swings in financial markets throughout the week.
Earlier in the week, the S&P 500 initially fell 1.2% at the start of Monday’s trading session but later recovered those losses and closed with a slight gain. In the bond market, Treasury yields fluctuated as rising oil prices pushed yields upward while weaker economic data pulled them lower.
The yield on the 10-year Treasury note briefly climbed toward 4.19% before settling at 4.14%. That compares with 4.13% late Thursday and 3.97% just a week earlier.
Smaller companies often feel the impact of higher borrowing costs more strongly because many rely on loans to expand their operations. These companies also tend to depend more heavily on the strength of the U.S. economy compared with larger multinational corporations. As a result, small-cap stocks experienced some of the steepest losses on Friday.
The Russell 2000 index, which tracks smaller companies, fell 2.3%. Among large companies within the S&P 500, businesses with high fuel costs were among the hardest hit. Old Dominion Freight Line dropped 7.9%, cruise operator Carnival declined 5%, and Southwest Airlines fell 5.3%.
Overall, the S&P 500 lost 90.69 points to close at 6,740.02. The Dow Jones Industrial Average declined 453.19 points to 47,501.55, while the Nasdaq composite fell 361.31 points to 22,387.68.
Markets outside the United States also reflected the uncertainty. European indexes dropped after stronger performances earlier in Asian markets. London’s FTSE 100 fell 1.2%, while Hong Kong’s Hang Seng index rose 1.7%.
South Korea’s Kospi index remained nearly unchanged after a volatile week in which it plunged 12.1% on Wednesday, its worst single-day loss on record, before rebounding 9.6% on Thursday.
