Stocks tumbled Thursday, with the Dow Jones Industrial Average shedding almost 800 points as oil prices jumped amid the war with Iran. Higher energy prices are sparking concerns on Wall Street that they could reignite U.S. inflation.

The Dow tumbled 785 points, or 1.6%, on Thursday, after briefly dropping more than 1,000 points. The broad-based S&P 500 shed 0.6%, while the tech-heavy Nasdaq composite declined 0.3%.

Oil prices rose after Iran launched a new wave of attacks against Israel, American bases and countries around the region. The war's escalations are raising worries about how long disruptions to the production and transport of oil and natural gas in the region could last.

A barrel of Brent crude, the international standard, rose 4.2% to $84.75. That's up from close to $70 late last week. A barrel of benchmark U.S. crude climbed 6.9% to $79.80.

Financial markets are again taking their cue from oil prices. Investors are growing concerned that a prolonged spike could strain households' ability to spend, grind down the global economy and push interest rates higher.

"These events are unfolding while gasoline demand is low, but the longer the conflict lasts, the more households will feel the pinch from higher pump prices," Oxford Economics economists Bernard Yaros and Sara Godfrey wrote in a March 4 research note.

Prices at U.S. gasoline pumps have already jumped due to higher oil prices. The average per-gallon price is nearly $3.26, up 26 cents per gallon from last week, according to GasBuddy.

"The consequences of the war for gas and liquefied natural gas are uncertain but could rival those that followed Russia's invasion of Ukraine in 2022," said Simon Flowers, chief analyst at energy data firm Wood Mackenzie. "Much will depend on whether the disruption is a short-lived blip or is more enduring, and whether gas and LNG infrastructure in the region suffers major damage."

Historical performance
To be sure, the U.S. stock market has a history of bouncing back relatively quickly following conflicts in the Middle East and elsewhere. That history has led many professional investors to urge patience and ride out the market's swings.

"While further escalation remains a risk, we think the more likely outcome is an increase in market risk aversion that likely lasts only a short time until investors can see a winding down of hostilities," said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

But if oil prices spike — say, rising as high as $100 per barrel — and stay there, it could be too much for the global economy to withstand. Uncertainty about that has caused this week's sharp swings, and much will depend on what happens with the Strait of Hormuz. Roughly a fifth of the world's oil typically sails through the narrow waterway off Iran's coast.

Stocks of retailers fell to some of the U.S. market's worst losses on Thursday. High gasoline prices mean their customers would have less to spend on other things.

American Eagle Outfitters fell 13.9% even though it reported stronger profit and revenue for the latest quarter than analysts expected.

Airlines also took sharp losses. Higher oil prices are increasing their already big fuel bills, while the war has left hundreds of thousands of passengers stranded across the Middle East.

American Airlines lost 5.4%, United Airlines fell 5% and Delta Air Lines sank 4%.

Small company stocks
Stocks of small companies, meanwhile, took the heaviest losses. That's typical when worries are growing about the strength of the economy and about interest rates rising. The Russell 2000 index of the smallest stocks fell 1.9%.

Wall Street's drop would have been worse if not for Broadcom. The chip company's stock rose 4.8% after it reported stronger profit and revenue for the latest quarter than analysts expected. It's one of Wall Street's most influential stocks because it's one of the biggest by total value, and CEO Hock Tan said it benefited from a 74% jump in revenue for AI chips.

In the bond market, Treasury yields climbed as rising oil prices put more upward pressure on inflation, which could keep the Federal Reserve from cutting interest rates.

The yield on the 10-year Treasury rose to 4.14% from 4.09% late Wednesday and from just 3.97% before the war with Iran started.

The Fed could keep interest rates high to keep a lid on inflation. But high interest rates would also keep it more expensive for U.S. households and companies to borrow money, weighing on the economy.

The central bank had indicated it planned to resume cutting interest rates later this year, in hopes of giving a boost to the job market and economy. Because of the war and higher oil prices, traders have pushed their forecasts further into the summer for when the Fed could begin cutting rates again.

Several reports on the U.S. economy also came in mixed.

One said fewer U.S. workers filed for unemployment benefits last week than economists expected. That's an encouraging signal for the job market.

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