U.S. stocks fell Monday as rising oil prices, renewed Middle East hostilities and increasingly hawkish expectations for Federal Reserve policy pressured markets, though all three major indexes still finished August with monthly gains.
By yourNEWS Media Newsroom
Wall Street closed lower Monday as a sharp rise in crude oil prices renewed concerns that energy costs could feed broader inflation and increase the likelihood that the Federal Reserve raises interest rates in September.
The retreat came at the end of a volatile August, with investors balancing continued strength in artificial intelligence-related stocks against mounting geopolitical and monetary-policy concerns.
All three major U.S. indexes finished Monday in negative territory, but each still posted a gain for the month.
The Nasdaq Composite recorded the strongest percentage advance of the three during August, supported by continued investor interest in artificial intelligence despite weakness in some technology shares toward the end of the month.
The Dow Jones Industrial Average, meanwhile, completed its fifth consecutive monthly gain.
Monday’s trading was dominated by concerns surrounding oil, interest rates and renewed fighting between the United States and Iran.
Crude prices climbed sharply as investors assessed continuing hostilities in the Middle East and the closure of the Strait of Hormuz, a critical route for global energy shipments.
The surge in oil prices weakened appetite for riskier assets and pushed benchmark U.S. Treasury yields higher.
Investors were also continuing to digest Federal Reserve Chair Kevin Warsh’s remarks Friday at the Jackson Hole Symposium, where his comments were interpreted as signaling a greater willingness to tighten monetary policy if inflation remains elevated.
“We heard from Warsh last week, and the odds now favor a rate hike in September,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “Throw that into the mix of continued hostilities in the Middle East.
“And the week before Labor Day, there’s not a lot of people who are out of the office, so weird things can happen,” Tuz added. “There was no reason to come into work today thinking it’s a great day to buy stocks.”
Financial markets increasingly expect the Federal Reserve to raise its benchmark interest rate at its September meeting.
According to CME’s FedWatch tool, traders were pricing in a greater than 65% probability of a quarter-percentage-point, or 25-basis-point, increase.
That shift in expectations has been driven partly by Warsh’s comments and partly by fears that higher energy prices could make inflation more persistent.
The renewed fighting with Iran has intensified those concerns.
Iranian President Masoud Pezeshkian said Tehran continues to seek a negotiated resolution to the war following several days of renewed airstrikes and escalating hostilities.
The latest fighting came as President Donald Trump’s administration implemented costly economic sanctions against Iran.
The continuing impasse, combined with the closure of the Strait of Hormuz, has raised fears that higher energy costs could spread throughout the broader economy by increasing transportation, manufacturing and consumer expenses.
If those pressures become entrenched, investors believe the Federal Reserve could conclude that another rate increase is necessary to keep inflation under control.
Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest in Elmhurst, Illinois, said investors are closely reconsidering Warsh’s Jackson Hole remarks in light of the latest inflation risks.
“Investors are revisiting some of the comments that Warsh made at Jackson Hole as well and what that may mean for interest rates, what that may mean for inflation,” Nolte said.
“If they do not hike rates in September, I think you will see a dramatic reaction in the markets because it’s been prepped now for quite some time that they’re going to raise rates.”
Preliminary closing figures showed the S&P 500 declining 27.39 points, or 0.36%, to 7,684.37.
The Nasdaq Composite lost 41.51 points, or 0.16%, to finish at 26,360.91.
The Dow Jones Industrial Average posted the largest percentage decline of the three benchmarks, dropping 380.22 points, or 0.71%, to 53,179.77.
Sector performance reflected the impact of higher energy prices.
Among the S&P 500’s 11 major sectors, energy shares posted solid gains as crude prices climbed.
Halliburton and Valero Energy were among the stocks advancing within the sector.
Utilities moved in the opposite direction.
The sector lagged following an amendment to legislation in the California Senate that investors viewed as doing little to address utility companies’ potential liabilities related to wildfires.
PG&E was hit particularly hard, posting its largest percentage decline in more than six years.
Elsewhere in the market, GameStop shares rose after the retailer changed the financing structure of a previously announced $1.4 billion debt exchange.
The company said it would use cash on hand to cover approximately 27% of the exchange rather than issuing additional shares.
The move reduced the amount of new stock that would otherwise have entered the market and therefore avoided some potential dilution for existing shareholders.
Monday’s declines came despite the broader indexes remaining positive for August.
The Nasdaq led monthly percentage gains as enthusiasm surrounding artificial intelligence continued to support technology shares.
The Dow’s fifth straight monthly advance also underscored the resilience of the broader market despite heightened volatility surrounding inflation, interest rates and geopolitical risk.
The immediate focus now shifts toward September’s Federal Reserve meeting and whether the central bank follows through with the rate increase markets increasingly expect.
Oil prices and developments in the U.S.-Iran conflict are likely to remain central to that calculation because a prolonged disruption in the Strait of Hormuz could keep energy prices elevated and complicate the Fed’s effort to return inflation to its target.
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