Oil Spike Weighs on Stocks as Middle East Tensions Reignite Inflation Concerns

U.S. equities finished mostly lower as a sharp surge in oil prices unsettled investors and reignited concerns about inflation and corporate profit margins. The S&P 500 declined 0.8%, the Nasdaq Composite slipped 0.6%, and the Dow Jones Industrial Average dropped 1.7%. Despite the losses, the major indices recovered significantly from deeper declines earlier in the session.

Energy markets were the dominant driver of sentiment. Crude oil futures surged 8.4% to settle at $80.97 per barrel, marking their highest closing level since July 2024. The spike followed reports that Iran claimed responsibility for an attack on a U.S. oil tanker in the Persian Gulf, although the claim has not been independently confirmed. Meanwhile, tanker traffic through the critical Strait of Hormuz remains nearly halted, fueling fears of supply disruptions.

Oil prices did retreat somewhat from intraday highs following several developments aimed at easing tensions in global energy supply chains. Reports indicated that the U.S. administration is exploring multiple options to bring down oil prices, including previously proposed measures such as government-backed insurance for tankers navigating the region and the potential deployment of U.S. Navy escorts.

Adding to the cautious optimism, reports also surfaced that China is engaged in talks with Iran to secure safe passage for oil and gas shipments through the strait. These headlines helped markets recover from their worst levels, allowing the Nasdaq Composite to remain slightly positive for the week.

Even so, weakness was widespread across equities. Only three S&P 500 sectors managed to close higher.

The energy sector finished as the day’s top performer, benefiting directly from the jump in crude prices, though it too traded below unchanged levels earlier in the session before turning higher.

Technology stocks also provided some support for the broader market. The sector edged higher thanks largely to continued strength in enterprise software. Intuit and ServiceNow led gains in the space, helping lift the broader software group despite ongoing weakness in semiconductors. While the chip sector declined overall, Broadcom stood out with a strong rally following a solid earnings report.

Consumer discretionary stocks also posted a modest gain. Amazon was one of the better-performing mega-cap names, while travel companies surged after reports that OpenAI may scale back plans to integrate direct travel booking features into ChatGPT. That development helped propel Expedia Group and Booking Holdings sharply higher.

Elsewhere, losses were steep across several sectors. Defensive areas lagged the most, with consumer staples and health care both posting sizable declines. Walmart dropped after being downgraded by analysts, while Costco also weakened ahead of its earnings report.

Materials stocks slid as metal prices retreated, and industrial companies—particularly transportation-related firms—came under pressure from rising fuel costs. Airline stocks and United Parcel Service were among the notable laggards.

Small- and mid-cap stocks fared even worse than large caps, with the Russell 2000 falling 1.9% and the S&P MidCap 400 declining 1.4%.

Although stocks rebounded from their intraday lows, the session marked a clear step backward after the brief stabilization seen the previous day. Much of the late-session recovery was tied to headlines suggesting efforts are underway to restore tanker traffic through the Strait of Hormuz.

For now, oil remains the key variable driving market sentiment. As long as crude prices continue climbing, investors are likely to remain concerned that higher energy costs could eventually feed into transportation expenses, corporate input costs, and ultimately broader inflation readings.

Our FTinvest 11 model portfolio declined 0.51% to close at 1,001.70, bringing the portfolio closer to the 1,000 level after several sessions of gradual downward movement. The index remains below its recent all-time high of 1,039.51, as markets continue to move through a period of consolidation following the strong rally earlier this year.

Despite the pullback, FTinvest 11 remains just above the 1,000 milestone, preserving the majority of its gains achieved during the early weeks of 2026. The portfolio’s disciplined, value-oriented approach continues to guide its positioning as it navigates short-term volatility while maintaining a focus on long-term performance.