Traders work on the floor of the New York Stock Exchange (NYSE) on July 20, 2026 in New York City, USA.
Brendan McDiarmid | Reuters
Major U.S. stock indexes fell on Thursday as investors began pricing in the impact of a flare-up and protracted conflict in the Middle East.
Domestic stocks were trading sideways as oil soared, largely dispelling any notion that war between the two countries would flare up again, while oil prices and Treasury yields both rose as the US carried out its 12th straight night of strikes against Iran.
That all changed on Thursday, when Brent crude oil futures soared above $100 a barrel and the yield on the 10-year U.S. Treasury soared above 4.7%, the highest level since January 2025, following reports of an attack on a tanker off the coast of Saudi Arabia. The S&P 500 index is headed for its biggest decline in a month.
Arrow pointing outside zoom in icon
Crude oil price and S&P500
fact set
“These issues have become too big to ignore,” Steve Sosnick, chief strategist at Interactive Brokers, said of Thursday’s stock price movement. “It’s too hard to ignore $100 oil. It’s too hard to ignore 10-year rates above 4.70%. It’s too hard for the stock market to ignore 30-year rates that are definitely above 5%.”
Western Texas Intermediate crude oil futures rose 6% to $92 a barrel, up more than 28% from a low of below $70 a barrel hit earlier this month. The S&P 500 is currently down about 2% since the US overnight strike began on July 12th.
The S&P 500 index fell more than 7.5% to its low in March after the U.S.-Iran war began, as oil prices rose nearly 70% and investors worried about stagflation. In stagflation, rising energy prices reignite inflation, and rising costs at the gas pump weigh on consumer spending.
A series of de-escalation announcements between the two countries and renewed confidence in artificial intelligence trade caused the S&P to rally sharply in April and May, despite various periods of hostilities.
Bet on President Trump’s resignation
But a big factor was the bet that President Donald Trump would find a way out to end the war rather than face the economic and political fallout of a protracted conflict.
“Since late March, we have consistently argued that stocks should take advantage of the weakness in stocks brought about by the Iran conflict, as in our view it is likely that a deal will eventually be reached,” JPMorgan equity strategists wrote in a note earlier this month. “The risk of a flare-up remains, but we think there should be some added upside on the back of unfavorable geopolitical headlines.”
Stock chart iconStock chart icon
S&P 500 since February 27, 2026
Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, believes traders now need to reconsider the economic fears they had in March.
He said investors need to be concerned about both rising inflation and the impact of rising gas prices on consumers. Samana added that a flare-up in the conflict is a reason to brace for a significant drop in stock prices.
Sosnick said Thursday’s stock price also likely factors in tighter corporate borrowing conditions. According to CME’s FedWatch tool, there is a nearly 38% chance that the Federal Reserve will raise rates next week, while the probability of a rate hike at the central bank’s September meeting is more than 80%.
A week ago, those odds were about 12% and 53%, respectively.
Back in March, many analysts were surprised that the stock market initially reacted less to the conflict and concluded that the U.S. economy was in better shape than in the past to handle energy shocks. Michael Tunney, CEO of investment advisory firm Pellaeon Wealth, is betting on this again.
“In the short term, spike increases mean more to headlines than to client portfolios,” Tunney said. “If prices persist above $120, that would be the breaking point where we see a severe trickle-down effect.”
—CNBC’s Deena Zaidi, Tanaya Macheel and Ananya Chetia contributed reporting
Never miss the most trusted news moments in business news when you choose CNBC as your preferred source on Google.
Source link
