Wall Street’s major indexes fell over 1% on Thursday, with financial stocks taking a blow, as a surge in oil prices toward $100 a barrel rekindled inflation fears and investors kept a close watch on mounting jitters in the private credit sector.
Crude prices jumped after two tankers were set ablaze in Iraqi waters in apparent Iranian strikes, as part of wider attacks on oil and transport facilities across the Middle East. Iranian Supreme Leader Mojtaba Khamenei said the Strait of Hormuz should remain closed as a tool of pressure.
S&P 500 airline stocks, highly sensitive to fuel costs, fell 3.7% and are on track for their biggest monthly losses in a year. Cruise operators Norwegian and Royal Caribbean fell 2.8% and 7% respectively.
Energy stocks rose, with Occidental gaining 5.9% and ConocoPhillips rising 3%, while the S&P 500 Fertilizers and Agricultural Chemicals sector climbed more than 5%.
Also underwhelming markets were concerns over the $2 trillion private credit market after Swiss private equity firm Partners Group warned default rates could double in the next few years.
Morgan Stanley fell 4% after limiting redemptions at one of its private credit funds following similar actions by Blackstone and BlackRock earlier this month. Blackstone and BlackRock were down 3.4% and 1.6% respectively.
“A high percentage of (private credit) holdings tend to be upstart software companies,” said Art Hogan, chief market strategist at B. Riley Wealth.
“They were likely seen as having an exit strategy at some point in time this year and it seems like that window to come public has closed a bit for software companies while it’s been under pressure. So that’s part of the problem with the mark-to-market that is going on with private credit, private equity.”
JPMorgan Chase reduced the value of some loans to private credit funds on Thursday.
The broader S&P 500 financials sector dropped 1.5%, with banks Citigroup and Goldman Sachs down over 3%.
Meanwhile, Fed Vice Chair for Supervision Michelle Bowman said that large bank capital requirements will fall slightly under revised drafts of sweeping bank capital rules.
At 11:53 a.m. ET, the Dow Jones Industrial Average fell 553.49 points, or 1.17%, to 46,861.34, the S&P 500 lost 71.01 points, or 1.05%, to 6,704.79 and the Nasdaq Composite lost 308.66 points, or 1.36%, to 22,407.48.
The CBOE volatility index, Wall Street’s fear gauge, was up 1.71 points at 25.94, while the rate-sensitive Russell small-caps index lost 1.6%.
Global markets have been roiled this month as the U.S.-Israeli war with Iran has disrupted oil and gas supplies and sent crude prices sharply higher, complicating global central banks’ plans to ease monetary policy.
Goldman Sachs now sees the Fed cutting rates in September, and money market futures show traders now see only one quarter-point cut by December, down from two cuts before the conflict.
The International Energy Agency said that the world is facing the biggest oil supply disruption ever.
Additionally, Washington said it was launching two new trade investigations into excess industrial capacity in 16 major trading partners and into forced labor, in a long-telegraphed move, to rebuild tariff pressure.
Dating app operator Bumble jumped 34% on Thursday after reporting fourth-quarter revenue above estimates.
Discount retailer Dollar General fell 4% after forecasting annual comparable sales below estimates.
On the data front, weekly jobless claims fell last week, which could help to assuage fears of a labor market deterioration after an unexpected decline in employment in February.
Declining issues outnumbered advancers by a 3.23-to-1 ratio on the NYSE and by a 3.07-to-1 ratio on the Nasdaq.
The S&P 500 posted 15 new 52-week highs and 17 new lows while the Nasdaq Composite recorded 26 new highs and 120 new lows.
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