U.S. stocks closed lower Monday as escalating oil prices pushed Treasury yields higher and increased expectations for another Federal Reserve rate increase, while uncertainty surrounding negotiations with Iran added pressure across financial markets.
By yourNEWS Media Newsroom
Wall Street fell Monday as investors confronted a renewed rise in energy prices, higher Treasury yields and growing expectations that persistent inflation could force the Federal Reserve to continue raising interest rates.
The S&P 500, Nasdaq Composite and Dow Jones Industrial Average all finished lower as markets reassessed the outlook for monetary policy against the backdrop of elevated crude and diesel prices and uncertainty over efforts to negotiate an end to the conflict with Iran.
Preliminary closing data showed the S&P 500 losing 59 points, or 0.76%, to 7,684.41. The Nasdaq Composite fell 246.62 points, or 0.91%, to 26,822.09, while the Dow dropped 343.78 points, or 0.66%, to 51,484.84. A later Reuters market update put the final declines at 0.77% for the S&P 500, 0.92% for the Nasdaq and 0.67% for the Dow. :chatgpt-content-reference{index=”0″}
Energy prices remained one of the central forces driving Monday’s trading.
Crude had climbed sharply after President Donald Trump rejected an Iranian proposal, although prices later surrendered part of those gains as investors assessed the possibility of further negotiations mediated by Qatar. Iran presented its proposal during last week’s United Nations General Assembly in New York and said it had been transmitted to Washington through Qatari intermediaries. Trump said Saturday that he rejected the offer but told Axios on Sunday that he expected U.S. negotiators to continue discussions during the week. :chatgpt-content-reference{index=”1″}
Oil had eased from earlier September highs before reversing course in recent days as expectations for a near-term agreement with Iran weakened.
The renewed increase has implications extending well beyond energy markets. Higher crude and diesel costs have intensified concern that inflation could remain elevated, contributing to an increase in Treasury yields and making government debt more competitive with stocks for investor capital.
Jack Ablin, chief investment strategist and founding partner at Cresset Capital Management in Chicago, described the chain of pressures affecting markets.
“Iran is driving oil prices, and oil prices are driving inflation, and inflation is driving interest rates,” Ablin said. “We’re getting to a point now where interest rates are looking pretty attractive relative to equities, which is really the first time in close to 20 years, so that’s something that we’re certainly paying attention to.”
The shift in yields is increasingly affecting how investors assess stock valuations rather than simply corporate earnings.
“It’s less of an earnings story right now than it is a valuation story,” Ablin said. “When you get an asset class that has been fighting with one arm tied behind its back for 20 years, now all of a sudden it’s looking pretty competitive.”
The pressure comes after the Federal Reserve raised its benchmark interest rate by 25 basis points earlier in September, its first rate increase in three years. Investors are now assigning substantially greater odds to another increase when policymakers meet in October. :chatgpt-content-reference{index=”2″}
Market pricing Monday indicated a 70.3% probability of an increase of at least 25 basis points at the Fed’s next meeting, according to CME FedWatch. That was up from 57.6% one week earlier and just 17.7% a month earlier.
The rapid change reflects both higher energy prices and economic data indicating that U.S. activity remains comparatively firm, potentially giving the Fed additional room to keep monetary policy restrictive.
Federal Reserve Gov. Lisa Cook added to the inflation discussion Monday, saying she expects price pressures to persist in coming months because of rising oil costs and demand associated with the expansion of artificial intelligence infrastructure. She did not say another rate increase was certain, emphasizing that future decisions would depend on incoming economic data and how the economy responds to earlier policy moves. :chatgpt-content-reference{index=”3″}
The Fed is attempting to return inflation to its 2% target while avoiding an unnecessary weakening of employment and economic activity. Inflation remained approximately 3.8% in the 12 months through August, according to Cook’s remarks Monday. :chatgpt-content-reference{index=”4″}
Investors will receive several major pieces of economic data this week that could alter expectations for October.
Reports covering inflation and the labor market are scheduled before Friday’s federal employment report, giving policymakers and markets additional evidence about whether price pressures are broadening and whether higher borrowing costs are beginning to weaken hiring.
Company-specific developments also contributed to Monday’s decline.
Boeing shares dropped sharply after Federal Aviation Administration Administrator Bryan Bedford said a newly identified software issue would delay certification of the 737 MAX 10, the largest version of the company’s MAX aircraft, until regulators are satisfied that the problem has been resolved.
The setback added pressure to the Dow, with Boeing among the index’s largest decliners Monday. Reuters reported the shares fell 6.9%. :chatgpt-content-reference{index=”5″}
Tesla also moved lower after J.P. Morgan reduced its price target for the electric-vehicle manufacturer, citing weak third-quarter deliveries. Tesla shares ended down 3.9%, according to the updated market data. :chatgpt-content-reference{index=”6″}
Nvidia moved in the opposite direction.
Shares of the semiconductor company gained after Nvidia authorized a $150 billion stock repurchase program, described as the largest corporate share buyback authorization on record. The stock rose 1.6% despite the broader market decline. :chatgpt-content-reference{index=”7″}
The diverging company moves were overshadowed by the broader repricing taking place across financial markets as investors weighed the possibility that interest rates could remain higher for longer.
Rising Treasury yields can pressure stocks in several ways. Higher yields increase borrowing costs for companies and consumers while also increasing the returns investors can receive from government securities without assuming the risks associated with equities. That can reduce the premium investors are willing to pay for stocks, particularly companies whose valuations depend heavily on expectations of future earnings growth.
Monday’s trading suggested that energy prices and interest-rate expectations have again become dominant considerations for investors after enthusiasm surrounding artificial intelligence and technology shares helped propel major indexes higher.
The S&P 500 recorded its largest one-day percentage decline since Aug. 20, while declining stocks substantially outnumbered advancing shares on both the New York Stock Exchange and Nasdaq. :chatgpt-content-reference{index=”8″}
The direction of markets now rests partly on two unresolved questions: whether U.S.-Iran negotiations can ease pressure on global energy markets and whether incoming inflation and employment figures strengthen or weaken the case for another Fed rate increase.
For investors, the two issues are increasingly interconnected. Continued geopolitical pressure on oil supplies could keep fuel prices elevated, prolong inflation and reinforce expectations for higher interest rates — leaving both stocks and bonds sensitive to developments in the Middle East and the economic data arriving in the days ahead.
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