Oil Spikes, Dow Drops

by Divya

7/8/20264 min read

The stock market has been experiencing a significant amount of volatility in recent days, with the Dow Jones Industrial Average and the S&P 500 finishing Wednesday's session in the red. The Dow Jones Industrial Average lost 576.76 points, or 1.09%, to settle at 52,348.39, while the broad-based S&P 500 pulled back 0.28% to finish at 7,482.71. The tech-heavy Nasdaq Composite, however, rose 0.2% to close at 25,870.65. This volatility can be attributed to various factors, including the ongoing tensions between the US and Iran, which have been escalating in recent days.

The latest development in the US-Iran tensions is the US's decision to abandon its ceasefire with Iran, which has led to a significant increase in oil prices. The price of Brent crude futures, the international price benchmark, jumped 6.2% to $78.73 per barrel, while US West Texas Intermediate futures were more than 6.3% higher at $74.71. This increase in oil prices has had a ripple effect on the stock market, with energy stocks rising and airline stocks falling. For instance, American Airlines was down nearly 4% on the day, while United Airlines declined roughly 2.5%. On the other hand, energy stocks such as Diamondback Energy, Occidental Petroleum, and Valero Energy led the gains.

The Federal Reserve's meeting minutes, which were released on Wednesday, also provided some insight into the central bank's policy direction. The minutes showed that the Fed is divided on how to proceed on interest rates, with some officials indicating that the appropriate level of the federal funds rate would be within or slightly below the current target range at the end of this year. However, others assessed that the appropriate level of the federal funds rate would be above the current target range. This division has led to some uncertainty in the market, with investors trying to gauge the Fed's next move. The 10-year Treasury yield, which is a key indicator of interest rates, rose to 4.577%, up 5 basis points from the previous day.

In addition to the US-Iran tensions and the Fed's meeting minutes, the stock market has also been impacted by the performance of individual companies. For example, Blue Origin, the rocket company founded by Jeff Bezos, is raising $10 billion in its first outside funding round, which will value the company at $130 billion. This news has had a positive impact on the stock market, with investors seeing it as a sign of the growing demand for space technology. On the other hand, the stock price of Hanwha Ocean, a South Korean company, plummeted after it lost a bid to build submarines for Canada. The company's shares fell by more than 6%, which had a negative impact on the overall stock market.

The European markets have also been affected by the US-Iran tensions, with the pan-European Stoxx 600 closing the session nearly 2% lower. The German DAX and the French CAC 40 also closed lower, down 2% and 1.7%, respectively. The Italian FTSE MIB ended the day 1.2% lower in Milan. The European markets have been closely watching the developments in the US-Iran tensions, as they have a significant impact on the global economy. The increase in oil prices, for instance, has led to a rise in inflation, which has had a negative impact on the European markets.

The materials sector has also been impacted by the US-Iran tensions, with the S&P 500 materials sector sliding close to 3% in midday trading. This made it the worst-performing sector of the 11 that comprise the broad index. If this holds through Wednesday's closing bell, it would be the sector's worst day since President Donald Trump's tariff announcement roiled markets in early April 2025. Smurfit WestRock and Amcor led the group lower, tumbling more than 7% and 6%, respectively. However, LyondellBasell and Dow, Inc. restricted losses, with the former rising more than 4% and the latter rising more than 3%.

The airline stocks have also been impacted by the US-Iran tensions, with the end of the ceasefire stoking concerns over a potential re-escalation in the Iran war. This has led to a rise in oil prices, which has had a negative impact on the airline stocks. American Airlines, for instance, was down nearly 4% on the day, while United Airlines declined roughly 2.5%. Delta Air Lines, Southwest Airlines, and JetBlue Airways fell about 2% each. The rise in oil prices has led to an increase in fuel costs, which has had a negative impact on the airline stocks.

The market is pricing in "flare-ups" in Middle East tensions, according to Tom Garretson, a senior portfolio strategist at RBC Wealth Management. Garretson believes that the conflict is just an added risk on top of what is a more fundamental case for higher interest rates, higher Treasury yields, and potential Fed rate hikes. However, he also believes that the US economy remains strong, with momentum building since last year. The 10-year Treasury yield is likely to reach 4.82%, according to Bank of America analysts, who believe that the yield will go upwards towards 4.65% or even up to 4.82% after it successfully broke above 4.20% in the third quarter.

The energy sector has been one of the top performers in the stock market, with the XLE ETF, which tracks the S&P 500 energy sector, jumping more than 2% in the premarket. Diamondback Energy, Occidental Petroleum, and Valero Energy led the gains. The tech sector, on the other hand, has been one of the worst performers, with the XLK tech sector ETF dropping around 2%. Sandisk was the fund's biggest decliner, losing 4%, while Micron slid 4%. The tech sector has been impacted by the rise in oil prices, which has led to an increase in inflation.

In conclusion, the stock market has been experiencing a significant amount of volatility in recent days, with the Dow Jones Industrial Average and the S&P 500 finishing Wednesday's session in the red. The US-Iran tensions, the Fed's meeting minutes, and the performance of individual companies have all had an impact on the stock market. The energy sector has been one of the top performers, while the tech sector has been one of the worst performers. The market is pricing in "flare-ups" in Middle East tensions, and the 10-year Treasury yield is likely to reach 4.82%. As the situation continues to evolve, it will be important to keep a close eye on the stock market and the various factors that are impacting it.