U.S. equity markets closed lower on Friday, extending a week of declines as investors grappled with heightened geopolitical tensions in the Middle East and sharp swings in global crude prices. The turbulence in energy markets, driven by concerns around supply disruptions linked to the Iran conflict, added another layer of uncertainty for global investors already navigating slowing economic signals and an evolving interest rate outlook.

According to market data, the Dow Jones Industrial Average fell 119.38 points to 46,558.47, while the S&P 500 declined 0.61% to 6,632.19. The technology-heavy Nasdaq Composite dropped 206.62 points, ending at 22,105.36. Small-cap stocks underperformed significantly, with the Russell 2000 index closing at its lowest level of the year, reflecting heightened risk aversion among investors.

Energy markets remained the primary driver of sentiment. Benchmark crude prices experienced sharp fluctuations throughout the week before moving higher. Front-month WTI crude futures settled at $98.71 per barrel, rising 3.11% on the day, while Brent crude climbed to $103.14 per barrel, marking its first close above $100 since August 2022.

The spike in oil prices follows escalating geopolitical tensions involving Iran. U.S. President Donald Trump signaled a tougher stance toward Tehran, stating that the United States would respond “very hard” in the coming week. Reports suggesting that the conflict has expanded across parts of the Middle East—including Lebanon, Kuwait, Iraq, the United Arab Emirates, Bahrain and Oman—have further dampened hopes of a near-term de-escalation.

Adding to supply concerns, Iran has reportedly tightened its control over the Strait of Hormuz, a critical maritime corridor through which roughly one-fifth of global oil shipments pass. According to assessments referenced by the International Energy Agency, the evolving conflict could result in the largest disruption in global crude supply on record.

Oil markets briefly stabilized after the United States temporarily eased sanctions on Russian oil in an attempt to offset supply concerns. However, the relief proved short-lived as geopolitical risks continued to dominate price movements.

Market strategists noted that the current environment is being driven as much by sentiment as by underlying fundamentals. Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest, described the volatility in energy markets as unusually intense, suggesting investors may need to remain patient until geopolitical developments become clearer.

The surge in crude prices is also complicating the global inflation outlook. Higher energy costs tend to filter through supply chains and transportation networks, raising broader price pressures across economies.

Recent U.S. economic data has already pointed to weakening momentum. The Commerce Department issued a sharp downward revision to fourth-quarter GDP growth, while data on durable goods orders signaled softening demand in parts of the manufacturing sector. Meanwhile, the Personal Consumption Expenditures index closely watched by the U.S. Federal Reserve as its preferred inflation gauge—showed limited progress in cooling price pressures.

Under normal circumstances, weaker economic data might strengthen expectations for monetary easing. However, the renewed surge in oil prices is complicating the policy outlook. Economists now expect the Federal Reserve to maintain its benchmark interest rate at current levels when policymakers meet next week.

Peter Cardillo, chief market economist at Spartan Capital Securities, noted that the possibility of energy-driven inflation could delay the timeline for any rate cuts. If oil prices remain elevated, inflationary pressures could persist longer than anticipated.

Sector performance across U.S. equities reflected the shifting risk environment. Technology stocks led the declines during the session, dragging the broader market lower. In contrast, defensive sectors such as utilities posted gains as investors rotated toward more stable earnings streams.

Financial stocks also came under pressure, with the S&P 500 financial sector declining 3.4% over the week amid concerns about credit quality and economic slowdown risks.

Corporate developments added to market volatility. Shares of Adobe fell sharply after news that long-time chief executive Shantanu Narayen plans to step down once a successor is appointed, raising uncertainty around the company’s strategic direction during a period of rapid technological change. Separately, Meta Platforms declined after reports that the company had postponed the release of its new artificial intelligence model “Avocado.”

Market breadth data indicated widespread weakness across equities. Declining stocks significantly outnumbered advancing issues on both the New York Stock Exchange and Nasdaq. Trading volumes also remained elevated compared with recent averages, highlighting strong investor participation during the volatile week.