High oil prices knock down stocks and erase Wall Street's hopes for a cut to interest rates

NEW YORK (AP) — Another climb for oil prices shook stock markets on Friday, as hopes collapsed for a possible cut to interest rates this year by the Federal Reserve.
The S&P 500 fell 1.5% to close its fourth straight losing week, its longest such streak in a year. The Dow Jones Industrial Average dropped 443 points, or 1%, and the Nasdaq composite tumbled 2%.
The market’s losses deepened after oil prices erased an early dip and accelerated in the afternoon. Brent crude, the international standard, rose 3.3% to settle at $112.19 per barrel. Benchmark U.S. crude gained 2.3% to $98.32 per barrel.
Stocks also bent under the weight of leaping yields in the bond market. Higher yields make mortgage rates and other borrowing more expensive for U.S. households and companies, slowing the economy, and they grind down on prices for all kinds of investments. Treasury yields have been jumping on worries the war with Iran will cause a long-term spike in oil and natural gas prices that drives up inflation.
Worries have gotten so high that traders have canceled nearly all their bets that the Federal Reserve could cut interest rates this year, according to data from CME Group. Some even think the Fed could raise rates in 2026, a nearly unthinkable scenario before the war began.
“I think it would be market shaking,” Ann Miletti, head of equity investments at Allspring Global Investments, said about a rate hike. But she also said that if oil prices stay high for a long time, they would likely drag so much on the economy that the Fed would not raise rates.
Lower interest rates would give the economy and investment prices a boost, and they’re something President Donald Trump has angrily been calling for. Before the war, traders were betting heavily that the Fed would cut rates at least twice this year.
But lower rates risk worsening inflation. And investors now see little room for central banks worldwide to cut interest rates to help their economies. Besides the Federal Reserve, central banks in Europe, Japan and the United Kingdom also held their interest rates steady this past week.
The price of Brent crude has zigzagged sharply on its way from roughly $70 per barrel before the war began to as high as $119.50 this week. Big swings have struck hour to hour as financial markets try to handicap how long the war will last and how much damage it will do to oil and gas production in the Persian Gulf.
The U.S. stock market has a history of bouncing back relatively quickly from past conflicts in the Middle East and elsewhere, as long as oil prices don’t stay too high for too long. Oil prices aren’t at a red-flag point yet, Miletti said, but “we’re getting close if the duration is long enough.”