U.S. stocks pared losses by midday Monday, with the Dow Jones Industrial Average down 400 points and the Nasdaq Composite reducing its decline to 0.1%. West Texas Intermediate crude oil surged above $100 per barrel, sparking fears of a stagflation scenario—marked by rising inflation and slowing growth—in the U.S. economy, which triggered a sharp drop in stock futures.
The Dow fell 418.47 points, or 0.88%, to 47,083.08; the Nasdaq declined 28.79 points, or 0.13%, to 22,358.89; and the S&P 500 dropped 32.90 points, or 0.49%, to 6,707.12. The CBOE Volatility Index (VIX), a key measure of market fear, climbed above 30 for the first time since last April, when concerns over tariffs imposed by the Trump administration triggered a sell-off. West Texas Intermediate crude jumped 10%, surpassing $100 per barrel and briefly rising above $119 in overnight trading. This marks the first time oil has breached the $100 level since 2022, when investors reacted to the outbreak of the Russia-Ukraine conflict. Brent crude rose 10%, reaching $102 per barrel. At the start of the year, U.S. crude was trading below $60 per barrel. Oil futures surged as major Middle Eastern producers cut output amid the prolonged closure of the key Strait of Hormuz. Kuwait announced a reduction in production but did not specify the scale, while Iraq's output reportedly dropped by 70%. Oil prices retreated from their daily highs after a prominent British financial media outlet reported that G7 officials were considering tapping strategic reserves. Stock futures also rebounded from their lows. Many on Wall Street view $100 oil as a tipping point for the economy unless the conflict is resolved quickly and prices retreat. In a social media post on Sunday evening, former President Trump stated that a "short-term rise in oil prices" was a "very small price to pay" to neutralize Iran's nuclear threat. Although Trump claimed the conflict had "already been won," there were few signs of de-escalation as Iran reportedly appointed Mojtaba, the son of Ayatollah Khamenei, as its new leader. Ed Yardeni, President and Chief Investment Strategist at Yardeni Research, noted, "We cannot rule out a bear market if investors begin pricing in a rerun of 1970s-style stagflation. A prolonged oil shock would put the Federal Reserve’s dual mandate at risk, caught between rising inflation and higher unemployment." Yardeni added that he remains optimistic the conflict will be resolved within weeks and that his base case still anticipates a technology-led economic boom and bull market. Financial and industrial stocks led declines in early trading due to concerns over an economic slowdown. Defense and energy sectors were the only groups to post gains. U.S. crude surged more than 35% last week, marking its largest weekly gain since the futures contract began trading in 1983. The Dow fell roughly 3% last week, its worst weekly performance since last April. The broad S&P 500 declined 2%, while the Nasdaq Composite finished the week down 1.2%.
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