U.S. stock markets slipped on Monday, August 31, with the S&P 500 falling $25.62$ points to $7,686.14$, the Dow Jones Industrial Average dropping $374.09$ points to $53,185.90$, and the Nasdaq Composite decreasing $31.53$ points to $26,370.89$. These declines were primarily driven by a surge in oil prices stemming from renewed military conflicts between the U.S. and Iran in the Middle East, specifically affecting the Strait of Hormuz. This geopolitical tension heightened fears of inflation, further complicated by hawkish statements from Fed Chair Kevin Warsh regarding the need for potential interest rate increases if inflation does not return to the central bank's $2$% target. Energy stocks, however, bucked the trend, with Brent crude prices jumping $1.04$% to settle at $90.49$ per barrel and WTI crude up over $2$%. Exxon Mobil rose $2.7$% and Chevron gained $2.1$%.
The rising oil prices contributed to a significant increase in the likelihood of a Federal Reserve rate hike. Traders now see over a $60$% chance of a rate hike at the Fed's September meeting, up from $41.4$% just a week prior, according to CME's FedWatch Tool. Analysts at BofA Global Research noted that "Absent a material downside surprise, the onus is now on Warsh to deliver a September hike." The ongoing energy crunch and persistently high inflation, which remains above $3$%, are putting pressure on the Fed to act. The 10-year Treasury yield also jumped to a 19-month high at $4.76$%.
The market losses were broad, with nearly every S&P 500 sector under pressure except for energy. Utilities, in particular, saw a significant decline of $1.19$% after a proposed amendment to a California Senate bill did little to alleviate concerns about wildfire liabilities for grid operators. PG&E Corporation plunged $19.4$% to $20.1$% and Edison International slumped $23.1$%, marking some of the sharpest declines in the S&P 500. Conversely, some technology stocks like Nvidia rose $1.13$%, with Sandisk and Qualcomm adding $3.75$% and $2.49$%, respectively. GameStop's shares also increased by $4.5$% after the company announced it would pay a portion of its $1.4$ billion debt exchange using cash, thereby avoiding further share dilution. Aon Plc fell $9.5$% following reports of its $17$ billion acquisition of USI Insurance Services.
