Oil prices jump again on worries about the Middle East as Wall Street fades

NEW YORK —  Crude prices jumped Thursday on worries that worsening tensions in the Middle East could disrupt the global flow of oil, while U.S. stocks pulled back further from their records.

The Standard & Poor’s 500 fell 0.2% amid a shaky week that’s knocked the index off its all-time high set on Monday. The Dow Jones industrial average fell 0.4%, and the Nasdaq composite edged down by less than 0.1%.

Stocks sank as oil prices kept rising amid the world’s wait to see how Israel will respond to Iran’s missile attack Tuesday. A barrel of Brent crude, the international standard, leaped 5% to $77.62 after starting the week below $72. It’s potentially on track for its biggest weekly percentage gain in nearly two years.

Oil prices rose after President Biden suggested Thursday that U.S. and Israeli officials were discussing a possible strike by Israel against Iranian oil facilities.

“We’re in discussion of that,” Biden said to reporters. He added, “I think that would be a little — anyway,” without finishing the thought. Biden also said he doesn’t expect Israel to retaliate immediately against Iran.

Iran is a major producer of oil, and a worry is that a broadening of the fighting could not only choke off Iran’s flows to China but also affect neighboring countries that are integral to the flow of crude. Helping to keep prices in check, though, are signals that supplies of oil remain ample at the moment. Brent crude fell to its lowest price in nearly three years last month.

In the bond market, Treasury yields rose after reports suggested that the U.S. economy remains solid. One showed growth for real estate, healthcare and other U.S. services businesses accelerated to its strongest pace since February 2023 and topped economists’ expectations, though employment trends may be slowing.

A separate report suggested that the number of layoffs across the United States remains relatively low. Slightly more workers filed for unemployment benefits last week, but the number remains low compared with history.

Outside of this week’s worries about the Middle East, the dominant question hanging over Wall Street has been whether the job market will continue to hold up after the Federal Reserve earlier kept interest rates at a two-decade high. The Fed wanted to press the brake hard enough on the economy to stamp out high inflation.

Stocks are near their record highs because of hopes that the U.S. economy will continue to grow, now that the Fed is cutting interest rates to boost it. The Fed last month lowered its main interest rate for the first time in more than four years and indicated that more cuts will arrive through next year.

China is also talking about more aid for its economy, and “when the top policymakers in the world’s two largest economies are determined to support economic growth, it pays to listen,” said Evan Brown, head of multi-asset strategy at UBS Asset Management. He suggests not underestimating policymakers’ resolve to cut the risk of a recession.

The job market could use help, as U.S. hiring has been slowing. The U.S. government will release the latest monthly update on the jobs market Friday, and economists expect it to show hiring slowed slightly from August’s pace.

On Wall Street, Levi Strauss dropped 7.7% despite reporting better profit for the latest quarter than analysts expected. The denim company’s revenue fell short of forecasts, and it said it’s considering what to do with its Dockers brand, whose revenue fell 7% last quarter.

Nvidia helped cushion the losses, and the 3.3% gain for the chip company was the strongest force pushing up on the S&P 500. After stumbling during the summer on worries that its price shot too high in Wall Street’s frenzy around artificial intelligence technology, Nvidia has been climbing back toward its record.

All told, the S&P 500 slipped 9.60 points to 5,699.94. The Dow dropped 184.93 points to 42,011.59, and the Nasdaq composite slipped 6.65 points to 17,918.48.

The yield on the 10-year Treasury rose to 3.85% from 3.78% late Wednesday. The two-year yield, which moves more closely with expectations for what the Fed will do with overnight rates, rose to 3.70% from 3.64%.

Yields have been rising as traders pare their bets for how much the Fed will cut interest rates at its next meeting in November. After many were previously forecasting another deeper-than-usual cut of half a percentage point, traders are now betting on a 65% chance that the Fed will cut its key rate by just a quarter of a percentage point, according to data from CME Group.

In stock markets abroad, Japan’s Nikkei 225 jumped 2% as its sharp swings continue amid speculation about when the country’s central bank may hike interest rates next.

Hong Kong’s Hang Seng has also been swerving, and it gave back 1.5%. Stocks in China have largely been surging on hopes for a flurry of recent announcements from Beijing to prop up the world’s second-largest economy. With Shanghai and other markets in China closed for a weeklong holiday, trading has crowded into Hong Kong.

Choe writes for the Associated Press. AP Business Writers Matt Ott and Elaine Kurtenbach contributed.