The major averages finished lower in the holiday-shortened week as surging oil prices and a sharp rise in Treasury yields created persistent headwinds for equities. The S&P 500 declined 0.8%, the Nasdaq Composite fell 0.7%, and the DJIA lost 1.6%. Small- and mid-cap stocks faced even greater pressure, with the Russell 2000 down 2.4% and the S&P Mid Cap 400 falling 1.9%.
Oil was the dominant influence for much of the week. WTI crude surged roughly 10% to finish above $100 per barrel as escalating hostilities between the U.S. and Iran heightened concerns about regional energy supplies and the Strait of Hormuz. The advance helped the energy sector gain 2.0%, making it one of just two sectors to finish higher, but presented a significant headwind for much of the rest of the market. A modest retreat in crude on Friday helped stocks recover some of their earlier losses.
Rising Treasury yields added to the pressure as inflation data strengthened expectations for another rate hike at next week's FOMC meeting. Thursday's PPI report reinforced those expectations, while Friday's CPI report pushed the market-implied probability of a 25-basis-point hike above 85%. The 10-year note yield climbed 20 basis points for the week to 4.98%, with the increase weighing particularly heavily on smaller stocks and rate-sensitive areas.
Technology stocks provided some relative support despite a mixed showing beneath the surface. The information technology sector slipped just 0.2%, as chip stocks generally held up better than the broader market. Software remained a pronounced weak spot. Friday's rebound in semiconductor and AI infrastructure names helped the technology sector recover some of its earlier losses.
Weakness was considerably broader outside the energy and technology complexes. The health care sector fell 3.6%, while materials (-1.7%), financials (-1.5%), consumer discretionary (-1.2%), industrials (-1.1%), and real estate (-1.1%) sectors also posted sizable declines. The communication services sector bucked the broader weakness with a 1.1% gain, helped by strength in select mega-cap names.
Overall, the week's losses reflected a challenging combination of geopolitical escalation, sharply higher oil prices, rising Treasury yields, and growing expectations for tighter monetary policy. Friday's broad rebound provided some relief as crude oil retreated and technology leadership reemerged, but it was not enough to erase the losses accumulated earlier in the week. Attention now turns to next week's FOMC meeting, with the market increasingly positioned for another rate hike following the latest inflation data.
Nasdaq Composite: -0.7% week-to-date
S&P 500: -0.8% week-to-date
DJIA: -1.6% week-to-date
S&P Mid Cap 400: -1.9% week-to-date
Russell 2000: -2.4% week-to-date