Stocks Plunge as Oil Surges Past $100 and Yields Climb Amid Stagflation Fears

Global equities reversed gains to close lower, with the S&P 500 shedding 2.4% and the Nasdaq Composite falling 3.1% as oil prices surged past $100 per barrel, driven by escalating geopolitical tensions in the Middle East. The benchmark CL=F contract reached $101.35, its highest level since late 2023, fueling inflation concerns and prompting a flight to safety in fixed income. The 10-year U.S. Treasury yield spiked to 4.87%, up 14 basis points in a single session, reflecting investor unease over the Federal Reserve’s ability to manage inflation without stifling growth. The sell-off was amplified by comments from Federal Reserve Bank of Chicago President Austan Goolsbee, who warned that recent economic shocks—including the oil surge—could push the U.S. economy toward stagflation. He cited recent job growth data showing a continued labor market strength, which may complicate the Fed’s policy pivot. With core inflation still above 3.5% and wage growth persisting, Goolsbee emphasized that the central bank now faces a tighter trade-off between controlling inflation and preventing a sharp downturn. The volatility index, ^VIX, jumped 21% to close at 27.8, its highest level since November 2023. Technology and growth stocks were hit hardest, with Apple Inc. (AAPL) shedding 4.3% amid broader sector weakness. Defense contractors also saw mixed performance, as rising oil costs weighed on energy-intensive operations, while geopolitical risks supported some demand for aerospace and defense equities. The S&P 500 Energy Sector Index rose 2.7%, reflecting the sector’s direct exposure to higher crude prices.