US equities closed lower on Thursday as the escalating conflict in the Middle East entered its sixth day. The prospect of a wider war drove energy prices higher, fueling concerns over renewed inflationary pressures that could alter the pace of future interest rate cuts by the Federal Reserve. The Dow Jones Industrial Average dropped 784.67 points, or 1.61%, to 47,954.74. The S&P 500 lost 0.56% to close at 6,830.71, and the Nasdaq Composite fell 0.26% to 22,748.99.
Market attention centered on the energy sector as investors assessed the risk of supply disruptions in the Strait of Hormuz, a critical transit route for Persian Gulf oil. Tanker traffic has already declined significantly due to elevated threats from missiles and drones. This supply apprehension pushed US crude up 8.5% to $81 per barrel, the highest level since July 2024, while global benchmark Brent crude rose 4.9% to $85.41 per barrel. Traders remain concerned that a prolonged disruption to energy supplies could embed inflation and impede global economic growth. Market participants note that crude prices approaching $100 per barrel would place considerably more pressure on broader market sentiment.
The spike in oil prices largely dictated the broader market retreat, though sector performances varied significantly. Industrials, materials, and healthcare stocks within the S&P 500 all declined by more than 2%. The airline industry faced particularly steep losses, with passenger airline subsectors dropping 5.4% and Southwest Airlines shedding 6.9%. Conversely, energy and technology stocks provided crucial market support. Chevron gained 3.9%, lifting the broader S&P 500 energy sector by 0.6%. Technology shares found strength in artificial intelligence themes, highlighted by a 4.8% advance in Broadcom after the chipmaker projected its artificial intelligence revenue would exceed $100 billion next year.
Economic data released earlier in the day further complicated the outlook for monetary policy. Initial claims for state unemployment benefits remained flat compared to the previous week, while ISM manufacturing and services figures surpassed expectations, indicating continued economic resilience. These robust indicators have heightened anticipation for the upcoming employment report and suggest the Federal Reserve may have less room to lower borrowing costs. According to LSEG data, financial markets are currently pricing in approximately 40 basis points of rate reductions for the entirety of 2026, down from the 50 basis points anticipated prior to the outbreak of the conflict. Some market strategists suggest that the potential impact of the upcoming jobs data may have already been priced into the market following the recent equity selloff.
Financial institutions also weighed heavily on the broader indices, with declining shares of JPMorgan Chase and Goldman Sachs exerting downward pressure on the Dow. Trading activity was notably elevated, with 22.3 billion shares changing hands on US exchanges compared to the 20-day moving average of 17.8 billion shares. Despite the geopolitical tensions, the underlying strength in technology stocks has allowed Wall Street to outperform both European and Asian markets this week, keeping the Nasdaq slightly positive with a 0.36% gain since the conflict began.