U.S. stocks fell sharply Friday as surging oil prices driven by ongoing conflict with Iran threatened to deepen inflation pressures on American households already struggling with higher costs for essentials. The S&P 500 fell 1.1% from its all-time high set the day before, while the Dow Jones Industrial Average was down 408 points, or 0.8%, at 9:35 a.m. Eastern time, and the Nasdaq composite was down 1.6% from its own record.
The selloff came as markets worldwide dropped on inflation worries, with indexes falling sharply across Europe and Asia. South Korea's Kospi dropped 6.1% after briefly topping the 8,000 level for the first time on Friday. It had been reaching records this year because of the influence of AI beneficiaries like SK Hynix. Technology stocks tumbled in a sharp turnaround from their meteoric rises for much of the year, which had carried markets worldwide to records but also raised criticism that they had gone too far. Nvidia fell 3.6% and was the heaviest weight on the S&P 500. It had come into the day with a gain of more than 26% for the year so far.
Economic Pressures Mount on Households
Rising oil prices were adding pressure after already sending inflation higher than economists had feared. The war with Iran was continuing, and the Strait of Hormuz remained shut to oil tankers, preventing them from delivering crude to customers worldwide and driving up oil's price. The price for a barrel of Brent crude oil, the international standard, rose 2.1% to $107.97 and was well above its level of roughly $70 from before the war.
The worries were also visible in the bond market, where Treasury yields climbed. The yield on the 10-year Treasury rose to 4.56% from 4.47% late Thursday. That was well above its 3.97% level from before the war. The yield on the 30-year Treasury was close to its highest level since 2023 after breaking above 5%. Higher yields can make mortgages and other kinds of loans to U.S. households and businesses more expensive, which slows the economy. They also tend to push downward on prices for stocks and other investments.
Federal Reserve Options Narrow
Yields have been climbing since the war on worries about higher inflation and how it may tie the Federal Reserve's hands when it comes to short-term interest rates. Traders have abandoned virtually all expectations that the Fed will resume its cuts to interest rates this year, and they have been building some bets that it may even hike rates in 2026, according to data from CME Group.
Many big U.S. companies have said their customers have been able to keep spending on their products and services despite having to pay higher prices for gasoline. But U.S. households have also been telling surveys they're feeling discouraged about the economy and the pressures building not only because of the war but also because of tariffs.
Brian Jacobsen, chief economic strategist at Annex Wealth Management, said, "To us, it looks like markets have pushed into overbought territory." He said the strong corporate profits and durable U.S. economy that launched U.S. stocks to records remain intact, but "the path is unlikely to be smooth. Periods like this call for discipline more than hope." Jonathan Krinsky, chief market technician at BTIG, said, "If nothing else this should be a 'shot across the bow' for how volatility works both ways."
Diplomatic Efforts Continue
President Donald Trump walked with Chinese President Xi Jinping at the Temple of Heaven in Beijing on Thursday, and Trump finished his Beijing trip. Trump was weighing a Taiwan arms package after a summit aimed at steadying U.S.-China ties. Trump said Xi offered to help broker peace with Iran.
Why This Matters:
The combination of surging oil prices and rising borrowing costs threatens to squeeze American families who are already facing elevated prices at the pump and grocery store. Higher Treasury yields make mortgages, car loans, and credit card debt more expensive precisely when households are telling surveys they feel discouraged about economic conditions. The Federal Reserve's diminishing options for rate cuts mean working families may face prolonged pressure without the relief that lower interest rates could provide. If the Strait of Hormuz remains closed and oil prices stay elevated, the inflationary impact will ripple through the economy, potentially forcing difficult choices between essential spending and discretionary purchases. The market volatility also underscores how geopolitical instability and trade tensions can quickly erode gains that have disproportionately benefited wealthy investors while everyday Americans contend with the real-world costs of conflict and policy uncertainty.