U.S. stocks broadly closed lower on Tuesday, September 1, as fresh U.S. military strikes against Iran caused oil prices to surge, fueling concerns about persistent inflation. This geopolitical development deepened an ongoing bond market sell-off, which further pressured stock valuations. The S&P 500 index declined by 0.7%, the Dow Jones Industrial Average fell 0.8%, and the Nasdaq composite slid 1%. These drops marked the third consecutive day of losses for the major indexes.
The renewed conflict between the U.S. and Iran has been a primary driver of market anxiety. Attacks on oil tankers in the Strait of Hormuz, attributed to Iran's Islamic Revolutionary Guard Corps (IRGC), have severely disrupted maritime traffic, with daily transits plummeting from an average of 100 vessels to single digits during the conflict's peak. This waterway typically accounts for 20% of global oil and LNG shipments. Consequently, Brent crude, the international benchmark, surged by 4.6% to settle at $94.65 per barrel, while U.S. crude climbed 5.2% to close above $90 for the first time in over a month, reaching $90.22 per barrel. Oil prices had already risen on August 31, with Brent increasing by 2.7% and U.S. crude by 2.2% to $87.67 per barrel.
The spike in oil prices directly impacts inflation expectations, as increased input costs for manufacturing, logistics, and transportation translate into higher prices for consumers. This inflationary pressure is a significant concern for the Federal Reserve, which has indicated discomfort with the current inflation rate, well above its 2% target. Fed Chairman Kevin Warsh's recent remarks suggested that the central bank is likely to raise interest rates, potentially in September, to curb inflation. Investors are currently betting on a 66% chance of an interest rate hike at the upcoming Fed meeting. The yield on the 10-year Treasury note, a key indicator for consumer lending rates like mortgages, rose to approximately 4.79%, its highest level since January 2025.
Technology stocks were particularly hard hit due to their reliance on borrowing for growth, which becomes more expensive with rising interest rates. Nvidia fell 1.5%, Amazon dropped 1.9%, and Advanced Micro Devices gave up 2.4%. The S&P 500 concluded the day down 54.67 points at 7,631.47, the Dow dropped 419.02 points to 52,766.88, and the Nasdaq fell 271.11 points to close at 26,099.77. The broader market sentiment reflects growing fears of an interest rate hike by the Federal Reserve and the ongoing impact of global conflicts on the U.S. and global economies.
