By Vicky Ge Huang

A disappointing report on the U.S. labor market, a spike in oil prices and the specter of a protracted Middle East war converged at the end of a turbulent week, fueling fears of a stagflationary spiral that threatens to derail the U.S. economy.

The U.S. lost 92,000 jobs in February, well below January's gain of 126,000 and far worse than the 50,000 jobs expected by economists. The unemployment rate ticked higher, to 4.4%.

The weak jobs report arrived on Friday, as the widening war in the Middle East propelled global oil prices past $90 a barrel. The Strait of Hormuz, where around a fifth of global oil supply typically flows through every day, is effectively shut. Kuwait has begun cutting production at some oil fields after running out of room to store its bottled-up crude.

Both U.S. and international crude benchmarks notched their largest one-week gains on record. The West Texas Intermediate benchmark rose 12% Friday to $90.90 a barrel, its biggest daily jump since 2020. For the week, the U.S. oil benchmark surged 36%. Brent-crude futures gained 8.5% to $92.69 a barrel, up a record 27% for the week.

A cooling labor market coupled with surging energy costs can be a recipe for stagflation, a scenario that puts the Federal Reserve in a difficult position, investors say. The central bank is expected to hold rates steady at its March meeting. And traders have pared back their expectations on rate cuts this year.

"It literally sets up a perfect storm," said Ken Mahoney, chief executive of Mahoney Asset Management. "Here we are, just two months into the year, getting hit from all sides."

On Friday, investor anxiety over the Iran conflict intensified. The Dow Jones Industrial Average lost 453 points, or 0.9%, dragging the blue-chip index 3% lower for the week in its steepest retreat since April. The S&P 500 fell 1.3%, bringing its weekly loss to 2%. The tech-focused Nasdaq decreased 1.6%, capping a 1.2% weekly decline.

Investors already have plenty of things to worry about. Concerns over the disruption of artificial intelligence have weighed on everything from software to insurance providers. Last week, fintech firm Block laid off 40% of its employees, citing AI tools as the reason for the cuts.

More recently, signs of stress are showing up in the private-credit market where major firms are pausing redemptions and writing down loans. On Friday, BlackRock shares tumbled 7.2% after the asset manager limited withdrawals from one of its flagship private-credit funds for the first time.

Treasury yields logged hefty weekly gains despite ending the Friday session lower. The yield on the 10-year Treasury note, which influences borrowing costs across the economy, settled at 4.131%. The yield on the 2-year Treasury note, which reflects investor expectations on near-term interest rates, edged down to 3.554%.

Some investors remain optimistic that the Middle East conflict will be short-lived. Heading into the midterms, the administration has strong political incentives to bring energy costs down, said Robert Edwards, chief investment officer at Edwards Asset Management.

"We are telling clients to keep cool, fill your tank right now before it gets higher, drive a little less and look forward to a 7700 S&P by year-end," he said.

Mahoney said he has been buying the dip for his clients over the past week, snapping up shares of Microsoft, Nvidia and Caterpillar. He cautioned against betting on a continued market slide, pointing to the president's track record of sudden policy reversals.

"The President has this tendency to TACO," he said, referring to Trump's tendency to announce tough policies only to backtrack on those announcements later. "I'm sure he's getting an earful right now of oil prices and people getting really concerned again."

Write to Vicky Ge Huang at vicky.huang@wsj.com

(END) Dow Jones Newswires

March 06, 2026 16:46 ET (21:46 GMT)

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