Overview
- Brent crude jumped more than 50% to about $112 a barrel after flows through the Strait of Hormuz were choked, which the International Energy Agency called the largest supply disruption in the global oil market.
- Major U.S. indexes have slipped only a few percent since late February, with the S&P 500 down 4.31%, the Dow down 5.05%, and the Nasdaq down 3.57%, even though the Dow and Nasdaq at one point met the common correction threshold.
- The S&P 500 fell below its 200-day moving average, and it has also logged four straight weekly closes under its 20-week average, a pattern that Barchart says has historically preceded further declines since 2018.
- Valuations were already lofty, with the Shiller CAPE near 39.7 in January, which leaves stocks more exposed when shocks hit and raises the odds that an oil spike could feed a downturn.
- If the supply squeeze persists, higher fuel costs could lift inflation, strain household budgets and company margins, and increase the chance that today’s pullback turns into a broader slump, as seen in the oil-led drops of 1973 and 1990.