US stocks slide as stagflation talk emerges

U.S. stocks closed sharply lower, with the blue-chip Dow posting its worst week in almost a year, after a double blow from a much weaker-than-expected monthly jobs report and escalating Mideast tensions.

The U.S. economy unexpectedly shed 92,000 jobs in February compared to the downwardly revised January gain of 126,000 and far below the growth of 50,000 that economists polled by Dow Jones expected for the month. The unemployment rate also rose to 4.4% from 4.3%.

Meanwhile, oil prices breached $90 per barrel after President Donald Trump said in a Truth Social post that fighting with Iran would not end without an “unconditional surrender” from the Middle Eastern country. Kuwait also began cutting production at some oil fields because it no longer has room to store more oil, since little to none is going out. Qatar said it may have to shut down production soon, the Financial Times reported.

Oil prices soared a record 36% on the week and nearly 13% on March 6 for its biggest daily jump in more than five years. 

"The last look at the labor market ahead of the start of the conflict suggests the labor market was not as strong as the January data indicated and the longer the conflict continues the more negative feedback on economic activity and the labor market could emerge," said Nationwide Chief Economist Kathy Bostjancic in a note.

The Dow ended down 0.95%, or 453.19 points, recovering slightly from an earlier 800-point decline, to 47,501.55. The broad S&P 500 slumped 1.33%, or 90.69 points, to 6,740.02 and the tech-heavy Nasdaq dropped 1.59%, or 361.307 points, to 22,387.679. West Texas oil soared 12.85% to $91.42 per barrel.

Is oil the new meme trade?

Retail, or individual, investors bought the United States Oil Fund ETF (USO) in record amounts, according to Vanda Research, which tracks retail investors.

In late afternoon trade, Vanda said money flowing into USO was on track to "surpass the previous high seen in April 2020 (when oil prices famously turned negative). This would lift 5-day net retail buying in USO to $82 million, well above the $67 million peak recorded during the April 2020" when the COVID-19 pandemic shut down businesses and created an oil glut.

The heavy buying suggests "oil may be emerging as the next 'meme theme' for retail investors," it said.

Is stagflation possible?

Stagflation, which is a barely growing economy with high inflation, isn't a base case scenario for most economists, but concerns are emerging.

The weaker labor market "make(s) it harder for the Fed to sell the labor market stabilization narrative that’s been used to justify patience on further rate cuts," said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management. "Add higher oil prices given conflict in the Middle East and renewed tariff uncertainty to the convoluted jobs market story, and you have a tricky, stagflationary mix of risks in the backdrop for the Fed."

Chicago Federal Reserve President Austan Goolsbee echoed those remarks. He said a sustained rise in the unemployment rate on top of an oil-price shock would create "exactly the kind of stagflationary environment that's as uncomfortable as any that faces a central bank," according to the Wall Street Journal.

The benchmark 10-year Treasury yield gave up early gains to end the trading day slightly lower at 4.14%.

(Updated with new information.)

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.