Stock markets plummet as oil nears $90 amid Iran war, U.S. job losses

U.S. stocks are falling sharply Friday after getting a whiff of a worst-case scenario for financial markets: a weakening economy combined with high inflation.

U.S. stocks are falling sharply Friday after getting a whiff of a worst-case scenario for financial markets: a weakening economy combined with high inflation.

The S&P 500 dropped 1.6 per cent after a report showed U.S. employers cut more jobs last month than they created and after oil prices jumped to their highest level in nearly two years because of the Iran war. It’s a combination that investors hate because no one in the world has a good tool to fix both a weak economy and high inflation at the same time.

The Dow Jones Industrial Average was down 823 points, or 1.7 per cent, as of 10:10 a.m. Eastern time, and the Nasdaq composite was 1.4 per cent lower.

The Toronto Stock Exchange fell almost 600 points, or 1.75 per cent as of publication.

“You can’t sugarcoat this report,” according to Brian Jacobsen, chief economic strategist at Annex Wealth Management.

“A negative payrolls number combined with a big jump in oil prices will have traders worrying about stagflation risks.”

Stagflation is what economists call a stagnating economy combined with high inflation, and a separate report released Friday added to the sour mix after showing that U.S. retailers made less money last month than economists expected. It raised the disconcerting possibility that spending by U.S. households, the main engine of the economy, may be stretched near its maximum.

Usually when the economy is unsteady and the job market is weakening, the Federal Reserve cuts interest rates to give things a boost. Lower rates can make it more affordable for households to get mortgages and companies to raise money to build factories, while also helping prices for stocks and other investments. The Fed cut its main interest rate several times last year and had indicated more were to come this year.