March 13 Close: Dow Falls Below 47,000 Points, Hits Year-to-Date Low as Rising Oil Prices Weigh on Stocks

On the early morning of March 13 Beijing time, U.S. stocks closed sharply lower on Thursday. The Dow Jones Industrial Average fell more than 700 points, dropping below 47,000, hitting a new low for the year. Attacks on oil tankers and Iran’s warnings about continuing to close the Strait of Hormuz shattered prospects for a resolution in Middle East conflicts. Rising oil prices further fueled inflation concerns and quickly diminished hopes for a Federal Reserve rate cut.

The Dow dropped 739.42 points, or 1.56%, to 46,677.85; the Nasdaq fell 404.16 points, or 1.78%, to 22,311.98; the S&P 500 declined 103.22 points, or 1.52%, to 6,672.58.

Iran’s new leader, Mohsen Rezaee, said Thursday that Iran will seek revenge for martyrs, and that the Strait of Hormuz should remain closed as a “pressure tool” against enemies, including attacks on U.S. military bases. Oil prices continued to climb afterward.

On Thursday, Brent crude futures briefly surged 10.4%, reaching $101.59 per barrel, before pulling back some gains amid market concerns over whether releasing reserves would be enough to buffer the impact of Middle East tensions.

Brent crude futures rose $8.48, or 9.22%, to close at $100.46 per barrel. U.S. West Texas Intermediate (WTI) crude futures increased $8.48, or 9.72%, to settle at $95.73 per barrel.

U.S. Energy Secretary Chris Wray told the media Thursday that the U.S. Navy is “not yet ready” to escort tankers through the Strait of Hormuz, but could be by the end of the month.

Wray said, “This will happen in the relatively near future, but not yet. We’re just not ready. All of our military assets are currently focused on destroying Iran’s offensive capabilities and supporting its manufacturing industry.”

Earlier this week, President Trump said the war would “end soon,” which temporarily paused the surge in oil prices after surpassing $100 per barrel.

As Middle East conflicts intensify, transportation through this critical oil route has nearly come to a halt. Iranian authorities reported that overnight, three more foreign ships were attacked in the Persian Gulf. Previously, on Wednesday, three different ships—including one inside the strait—were attacked.

On Tuesday, the U.S. military claimed to have sunk 16 Iranian mine-laying boats near the Strait of Hormuz.

Additionally, the U.S. government announced a plan to provide insurance for ships attempting to pass through the Strait of Hormuz, with Chubb Insurance selected as the primary underwriter.

Adam Krisafulli of Vital Knowledge said, “With tankers attacked and the Strait of Hormuz still closed, pushing Brent crude above $100, Iran’s strategy to create economic chaos in the Gulf is working. The U.S. and Israel hold military advantages, and Iran’s missile/nuclear programs may have been weakened, but Tehran’s hardline government remains solidly in place. Its current plan seems to be to use oil to further push Trump toward withdrawal.”

To help lower energy costs, Wray announced Wednesday evening that the U.S. will release 172 million barrels from strategic petroleum reserves. It will take about 120 days to deliver this fuel.

The International Energy Agency also agreed Wednesday to coordinate the release of 400 million barrels of oil to address supply disruptions caused by the war. However, concerns that the conflict could persist kept oil prices rising in the previous trading session.

Antoni Sgourakis, chief market strategist at Ameriprise, said, “If energy costs and gasoline prices stay at current levels or rise for a period due to Middle East developments, it could dampen consumer sentiment as we approach midterm elections and make affordability a key issue.”

Sgourakis added, “That said, overall consumer balance sheets remain healthy, income and employment are strong, and inflation in key areas like housing continues to ease. Over time, if inflation continues to subside (excluding temporary energy impacts) and markets and the economy stay solid, Americans’ perceptions of their daily affordability could improve.”

Market Expectations for Fed Rate Cuts Are Rapidly Fading

Monica Griess, head of U.S. policy at Morgan Stanley Wealth Management, said that historically, geopolitical-driven market volatility tends to be short-lived. However, if oil prices keep rising, “the Fed’s response mechanism could become more complex, supporting the possibility of maintaining higher federal funds rates for longer.”

With energy prices and inflation concerns both rising, market expectations for a Fed rate cut are waning. Recently, traders have given up hope of a rate cut in early summer, coinciding with U.S.-Iran tensions and oil prices hitting around $100 per barrel.

According to FedWatch on the Chicago Mercantile Exchange, before the conflict, markets priced in a 25 basis point rate cut in June, with another possible cut in September, and a small chance of three cuts, depending on economic conditions.

The main rationale behind these expectations is that a softening labor market, easing inflation, and the appointment of a new dovish Fed chair in May could lead the Fed to adopt a more accommodative stance. But during the Iran situation, the primary focus remains on fighting inflation.

Economists surveyed expect the Fed to cut rates in June for the first time this year. Nearly 40% predict only one rate cut this year, almost twice the number of economists forecasting three or more cuts.

Despite ongoing conflicts, the S&P 500 has experienced a relatively mild correction, declining just over 4% from its record high in January.

Thursday saw broad sell-offs, with declines in banking and tech stocks. Morgan Stanley led financials lower after restricting redemptions from private credit funds. Energy stocks like Chevron and ExxonMobil were among the few gainers.

Economic data released Thursday showed unchanged initial jobless claims, a narrowing trade deficit, and a surge in new home starts.

The Labor Department reported that for the week ending March 7, seasonally adjusted initial unemployment claims were 213,000, down 1,000 from the previous week, below the Dow Jones consensus of 215,000. Continuing claims decreased by 21,000 to 1.85 million.

The Commerce Department data showed that the January trade deficit shrank to $54.5 billion, down $18.4 billion from the previous month, well below the forecast of $67 billion. These figures predate the Supreme Court’s ruling rejecting many tariffs imposed by President Trump.

On the housing front, January building permits, seasonally adjusted, totaled an annualized 1.38 million units, down 5.4% from December and below the 1.41 million forecast. However, housing starts rose 7.2% month-over-month to an annualized 1.49 million units, beating the 1.35 million estimate.