US equity markets closed sharply lower on Friday as investors grappled with a sudden combination of geopolitical risk and economic uncertainty. A spike in crude oil prices triggered by escalating tensions in the Middle East, along with signs of weakness in the US labour market, pushed Wall Street’s major indices into their steepest weekly declines in months.

The selloff reflects a broader shift in market sentiment as investors reassess the outlook for inflation, interest rates, and global growth. A surge in energy prices combined with weakening economic data creates a difficult policy environment for the US Federal Reserve, potentially delaying interest rate cuts that markets had been anticipating.

The immediate trigger came from the latest US payrolls data, which showed signs of labour market cooling. The unemployment rate climbed to 4.4 percent amid disruptions caused by healthcare worker strikes and severe winter weather. While the report may contain temporary distortions, it still raised concerns that the US economy could be losing momentum after a period of strong employment growth.

At the same time, geopolitical tensions intensified following military developments involving the United States, Israel and Iran. The escalation disrupted shipping through the Strait of Hormuz, a critical global oil transit route responsible for roughly one-fifth of global crude flows. The disruption sparked fears of supply shortages and triggered a sharp rally in energy markets.

US crude futures jumped more than 12 percent to above 90 dollars per barrel, while Brent crude rose about 8.5 percent to roughly 92 dollars per barrel. Energy market participants also reacted to warnings from Qatar that crude prices could potentially surge toward 150 dollars per barrel if supply disruptions worsen.

This sudden spike in energy prices revived fears of inflationary pressure returning to global markets. Higher oil prices tend to increase transportation and manufacturing costs, raising the risk that businesses pass those costs on to consumers. For central banks already struggling to balance inflation control and economic growth, such developments complicate policy decisions.

Market participants increasingly worry that the Federal Reserve may have less flexibility to cut interest rates if inflation pressures re-emerge. Strategists noted that persistent geopolitical tensions could keep energy prices elevated, thereby delaying the easing cycle that investors have been expecting.

Reflecting this shift in sentiment, the Dow Jones Industrial Average fell 0.95 percent to close at 47,501.55 points. The S&P 500 dropped 1.33 percent to 6,740.00, while the Nasdaq Composite declined 1.59 percent to 22,387.68. Small-cap stocks were hit even harder, with the Russell 2000 posting its steepest weekly fall since early August.

Investor anxiety also surged across derivatives markets. The Cboe Volatility Index, often referred to as Wall Street’s fear gauge, jumped to 29.49, its highest closing level since April 2022. Rising volatility suggests investors are bracing for continued market turbulence if geopolitical risks escalate further.

Sector performance highlighted the uneven impact of rising oil prices. Energy stocks managed to remain resilient, with the S&P energy sector posting a modest gain of 0.13 percent as higher crude prices improve revenue prospects for producers. However, sectors sensitive to fuel costs and economic activity faced significant pressure.

Travel and aviation stocks were among the worst performers as higher fuel costs threaten to squeeze margins. The S&P Passenger Airlines Sub-Index dropped more than 4 percent, reflecting investor concerns that rising jet fuel prices could erode profitability if airlines cannot fully pass costs to passengers.

Financial stocks also came under pressure. The S&P 500 Banks Index fell more than 2 percent as investors weighed the risk that weaker economic growth could tighten credit conditions and reduce loan demand. Rising volatility and uncertain interest rate trajectories typically create headwinds for banking sector profitability.

Company-specific developments added to the turbulence. Asset management giant BlackRock declined sharply after announcing restrictions on withdrawals from a major private credit fund, highlighting liquidity concerns within parts of the alternative credit market. Meanwhile, lender Western Alliance dropped after filing legal action related to loans linked to bankrupt auto parts supplier First Brands Group. Investment bank Jefferies also saw a steep fall amid the dispute.

One notable exception to the negative trend was semiconductor company Marvell Technology, which surged after projecting fiscal 2028 revenue above market expectations. The rally suggests that long-term demand for advanced chips, particularly linked to artificial intelligence and data infrastructure, remains a structural growth driver despite broader market volatility.

Safe-haven assets reflected rising uncertainty as well. Gold prices climbed nearly 2 percent as investors sought protection from geopolitical risk, while bitcoin fell more than 4 percent, underscoring the cryptocurrency market’s sensitivity to shifts in risk appetite.

Trading activity surged across US exchanges, with nearly 20 billion shares changing hands, significantly above the recent average. Elevated volume often signals heightened institutional repositioning during periods of market stress.