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

Another climb for oil prices sent the U.S. stock market sharply lower, as hopes collapsed for a possible cut to interest rates by the Federal Reserve.

The S&P 500 fell 1.5 per cent to close its fourth straight losing week, its longest such streak in a year. The Dow Jones Industrial Average dropped 443 points, or one per cent, and the Nasdaq composite tumbled two per cent.

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 per cent to settle at US$112.19 per barrel. Benchmark U.S. crude gained 2.3 per cent to US$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.