Wall Street, global markets partly recover after early sell-off sparked by war with Iran

A sell-off for stocks wrapped around the world and hit Wall Street Tuesday, though the losses eased significantly as the day progressed. Oil prices, meanwhile, leaped even higher on worries about the widening war with Iran.

The S&P 500 dropped as much as 2.5 per cent Tuesday morning because of worries that the war may do more sustained damage to the economy than feared. But the index at the heart of many 401(k) accounts trimmed its loss and was down a more modest 0.9 per cent by the end of the trading day.

The Dow Jones Industrial Average was down 403 points, or 0.8 per cent, after plunging more than 1,200 points in the morning. The Nasdaq composite pared its loss to one per cent.

It was just a day ago that U.S. stocks opened the morning with sharp losses, only to recover all of them and end the day with slight gains. But that was with the caveat that oil prices did not jump too high, such as above $100 US per barrel.

On Tuesday, oil prices rose again and raised more alarms. The price for a barrel of Brent crude, the international standard, briefly leaped above $84 US. But that jump lessened through the day, and Brent settled at $81.40 US, up 4.7 per cent. A barrel of benchmark U.S. crude rose 4.7 per cent to $74.56 US.

Oil prices made the leap as Iran struck the U.S. Embassy in Saudi Arabia, part of a widening of targets that also includes areas critical to the world’s oil and natural gas production.

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Worries are particularly high about what will happen to the Strait of Hormuz off the coast of Iran, a narrow passageway where roughly a fifth of the world’s oil passes, making it crucial for the global flow of crude.

Iranian Brig.-Gen. Ebrahim Jabbari, an adviser to the paramilitary Revolutionary Guard, declared that the Strait of Hormuz is closed, vowing that any ships that passed through it would be set on fire.

Questions about how long this war may continue are making things uncertain for markets.

“It’s apparent now that this may take a few weeks,” said Thomas Hayes, chairman and managing member at Great Hill Capital, in an interview with CBC News.

“There are some variables that are coming into play that maybe the market wasn’t ready for — in terms of the different attacks that Iran has made and the different implications with the Strait of Hormuz being closed and the impact on energy prices, which affects inflation, which affects the Fed’s ability to cut rates further, et cetera,” he said.

Strikes by the United States and Israel have already killed Iranian Supreme Leader Ayatollah Ali Khamenei, but U.S. President Donald Trump has suggested that fighting may continue for weeks.

Late Monday night, Trump said on his social media network, “Wars can be fought ‘forever,’ and very successfully” with the supply of munitions that the United States possesses.

The jump in oil prices will worsen inflation and put more pressure on U.S. households and businesses by raising bills for gasoline and to ship products. The average price for a gallon of gasoline in the U.S. jumped 11 cents overnight to about $3.11 US, according to data from the American Automobile Association.

That has the damage in stock markets so far centring on companies and countries that use a lot of oil, natural gas and other petroleum-based fuels.

Airline stocks sink

In South Korea, a big energy importer, the Kospi stock index plunged 7.2 per cent for its worst day since two summers ago. It had been setting records recently.

Japan’s Nikkei 225 dropped 3.1 per cent, even as analysts say Japan has a sizable stockpile of energy to last more than 200 days.

On Wall Street, airlines continued to sink on worries about rising fuel bills. The war has also led to cancelled flights and stranded passengers. American Airlines sank 3.1 per cent, and United Airlines fell 2.4 per cent.

Wall Street’s losses were widespread, and nearly two out of every three of the stocks within the S&P 500 dropped. Unlike a day before, influential Big Tech stocks weren’t able to prop up indexes, and Nvidia fell 1.4 per cent.

Among the few winners on Wall Street was Target, which rose 6.5 per cent after the retailer reported a better profit for the latest quarter than analysts expected.

In the bond market, Treasury yields climbed more as worries rose further about inflation worsening. The yield on the 10-year Treasury jumped to 4.10 per cent from 4.05 per cent late Monday and from just 3.97 per cent on Friday.

Higher yields can mean more expensive loans for U.S. households and businesses, for everything from mortgages to bond issuances.