The strongest action was in the oil market, where the price of a barrel of benchmark U.S. crude jumped 7.3% to $72.98. Brent crude, the international standard, rose 7% to $74.23 for a barrel.
Iran is one of the world’s major producers of oil, though sanctions by Western countries have limited its sales. If a wider war erupts, it could slow the flow of Iran’s oil to its customers and keep the price of crude and gasoline higher for everyone worldwide.
Beyond the oil coming from Iran, analysts also pointed to the potential for disruptions in the Strait of Hormuz, a relatively narrow waterway off Iran’s coast. Much of the world’s oil that's been pulled from the ground moves through it on ships.
Past attacks involving Iran and Israel have seen prices for oil spike initially, only to fall later “once it became clear that the situation was not escalating and there was no impact on oil supply,” according to Richard Joswick, head of near-term oil at S&P Global Commodity Insights.
That has Wall Street waiting to see what will come next. U.S. stock prices dropped to their lowest points for the day after Iran launched ballistic missiles toward Israel.
For now, the price of oil has jumped, but it’s still lower than it was earlier this year. “This is an economic shock that nobody really needs, but it is one that seems more like a shock to sentiment than to the fundamentals of the economy,” said Brian Jacobsen, chief economist at Annex Wealth Management.
That in turn sent U.S. stocks to a loss that was notable in size but outside their top 15 for the year so far.
Companies that use a lot of fuel as part of their business and need their customers feeling confident enough to travel fell to some of the sharpest losses. Cruise operator Carnival dropped 4.9%. United Airlines sank 4.4%, and Norwegian Cruise Line Holdings fell 5%.
They helped overshadow gains for U.S. oil producers and other companies that could benefit from increased fighting between Israel and Iran.
Exxon Mobil rose 2.2%, and ConocoPhillips gained 2.4% because the leaping price of crude portends bigger profits for them.
Contractors that make weapons and defense equipment also rallied. Lockheed Martin, Northrop Grumman and RTX all rose more than 3%.
The price of gold climbed as investors searched for safer places to park their cash. An ounce of gold added 1.4%.
Often, prices for Treasury bonds will likewise rise when investors are feeling nervous. That’s because U.S. government bonds have historically been seen as some of the safest options around. But Treasury prices fell Friday, which in turn pushed up their yields, in part because of worries that a spike in oil prices could drive inflation higher.
Inflation has remained relatively tame recently, and it's near the Federal Reserve's target of 2%, but worries are high that it could be set to accelerate because of President Donald Trump's tariffs.
That sent the yield on the 10-year Treasury up to 4.41% from 4.36% late Thursday. Higher yields can tug down on prices for stocks and other investments, while making it more expensive for U.S. companies and households to borrow money.
A better-than-expected report Friday on sentiment among U.S. consumers also helped drive yields higher. The preliminary report from the University of Michigan said sentiment improved for the first time in six months after Trump put many of his tariffs on pause, while U.S. consumers’ expectations for coming inflation eased.
On Wall Street, Adobe fell 5.3% even though the company behind Photoshop reported a stronger profit for the latest quarter than Wall Street expected. Analysts called it a solid performance but said investors may have been looking for some bigger revenue forecasts for the upcoming year.
All told, the S&P 500 fell 68.29 points to 5,976.97. The Dow Jones Industrial Average dropped 769.83 to 42,197.79, and the Nasdaq composite sank 255.66 to 19,406.83.
In stock markets abroad, indexes slumped across Europe and Asia. France’s CAC 40 lost 1%, and Germany’s DAX dropped 1.1% for two of the larger losses.
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McHugh reported from Frankfurt, Germany, and Junzhe reported from Hong Kong. AP Business Writers Matt Ott and Dee-Ann Durbin contributed.