New York. US stocks fell sharply on Friday after investors faced a worst-case scenario for financial markets: a weakening economy combined with high inflation.

The S&P 500 dropped 1.4% in early trading after a report showed US employers cut more jobs last month than they created. Oil prices also jumped to their highest level in nearly two years amid the war involving Iran, fueling concerns about inflation.

The combination of slowing economic growth and rising prices is particularly troubling for investors because policymakers have limited tools to address both problems at the same time.

The Dow Jones Industrial Average fell about 800 points, while the Nasdaq Composite slid 1.4%.

Wall Street was already on track to open lower Friday as oil prices continued to climb, hitting their highest level in nearly two years less than a week after the United States and Israel began bombing Iran, one of the world’s top oil producers.

Futures for the S&P 500 and the Dow Jones Industrial Average fell 0.7% before the opening bell, while Nasdaq futures dropped 1%.

Benchmark US crude surged 6.8% to $86.57 per barrel as the war involving Iran entered its seventh day. Brent crude, the international benchmark, rose 4.7% to $89.44 per barrel. Both were trading near their highest levels since April 2024.

If oil prices spike further and remain elevated, analysts warn the surge could weigh on global economic growth. Uncertainty over the trajectory of the conflict has triggered volatile swings across financial markets this week.

Oil markets will largely depend on the steady resumption of tanker traffic through the Strait of Hormuz following recent disruptions, analysts at ING wrote. Roughly one-fifth of the world’s seaborne oil supply passes through the strategic waterway between Iran and Oman.

The conflict has also halted exports of Iranian gas to parts of Asia. If the disruption persists, it could spark a bidding war between Europe and Asia for energy supplies, potentially driving prices even higher, according to Fatih Birol, executive director of the International Energy Agency.

The prospect of higher fuel costs for an extended period weighed on airline stocks in early trading Friday. Shares of Delta Air Lines, United Airlines, and American Airlines each fell about 2.5% in premarket trading after dropping between 4% and 5% on Thursday.

Gasoline prices in the United States also rose another seven cents to an average of $3.32 per gallon, according to AAA, marking an 11.4% increase over the past week.

In currency trading early Friday, the US dollar strengthened to 157.93 Japanese yen from 157.56 yen, while the euro slipped to $1.1563 from $1.1611.

Gold and silver prices were both up less than 1%.

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