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Oil prices rose and stock markets dropped in shaky trading worldwide Wednesday after U.S. President Donald Trump raised doubts about the temporary truce in the war with Iran.
The S&P 500 fell 0.3 per cent Wednesday after sinking as much as 1.1 per cent earlier in the day. The Dow Jones Industrial Average dropped 1.1 per cent after Trump said the agreement to pause fighting was over. The Nasdaq composite erased an early slump and rose 0.2 per cent after Trump said in the afternoon that the most recent fighting did not mean a return to full-scale war.
Canada’s main index, the S&P/TSX, finished the day down about a per cent.
The action was stronger in the oil market, where the price for a barrel of Brent crude climbed 5.2 per cent to $78.02 US shortly after 4 p.m. ET and briefly topped $80 US. That’s still well below its peak from earlier in the war, when the price for the most actively traded contract reached nearly $120 US. But the jump is unsettling because oil prices had just dropped back to where they were before the war.
The worry is that a continuation of the war will block the Strait of Hormuz and keep oil tankers bottled up in the Persian Gulf instead of delivering crude to customers worldwide. That could worsen inflation, which economists expected would ease with oil prices, and in turn force central banks to raise interest rates.
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Higher rates can keep a lid on inflation, but they also slow the economy and hurt prices for all kinds of investments.
On Wall Street, companies with big fuel bills fell sharply. American Airlines lost four per cent, and cruise operator Carnival fell 3.9 per cent.
Stocks of companies in the housing industry also helped lead the way lower. They were hurt by worries that rising Treasury yields in the bond market would lead to higher rates for mortgages and chill the industry.
Builders FirstSource, which sells counters, windows and other building supplies, fell 5.4 per cent. Homebuilders PulteGroup fell 5.4 per cent, and D.R. Horton sank 4.6 per cent.
Helping to offset those losses was a steadying for some influential stocks in the artificial intelligence industry. They’ve been under pressure in recent weeks on worries that their prices shot too high and that AI may not produce enough productivity and profits to make all the investments in chips and data centers worth it.
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Their swings carry a lot of weight on Wall Street because AI stocks have grown into some of the U.S. market’s biggest, which gives their movements more effect on the S&P 500 than other stocks.
Nvidia rose 3.7 per cent, for example, and was the strongest force pushing upward on the S&P 500 because it’s the largest stock on Wall Street.
In the bond market, Treasury yields rose with the price of oil. The yield on the 10-year Treasury briefly got near 4.60 per cent before pulling back to 4.57 per cent. That’s up from 4.55 per cent late Tuesday and from just 3.97 per cent before the war with Iran began.
In stock markets abroad, losses for European markets worsened after Trump said, “For me, I think it’s over” about the status of the ceasefire.
Germany’s DAX lost 2.2 per cent, as did France’s CAC 40.
In Asia, South Korea’s Kospi dropped 5.3 per cent and continued its sharp swings amid duelling worries and euphoria about the AI stocks that dominate its market.
Hong Kong’s Hang Seng index was an outlier and rose three per cent.
Shares that trade in Hong Kong of Chinese AI startup Zhipu, known also as Z.ai and traded as Knowledge Atlas Technology, jumped 13.4 per cent. A six-month lockup period for “cornerstone” investors following its January trading debut in Hong Kong expires this week.
Zhipu’s share price has risen more than 1,300 per cent since its debut.