Key Takeaways
- US stock indexes fell as oil prices rose due to military strikes between the US and Iran.
- Fed Chair Kevin Warsh’s hawkish remarks increased the likelihood of a September rate hike.
- The Dow Jones, S&P 500, and Nasdaq all saw losses, with energy stocks outperforming.
US stock markets experienced a decline on Monday, with the main indexes falling as oil prices surged following military strikes between the United States and Iran. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all saw losses, signaling a potential weak start to September for equities.
The losses were exacerbated by Federal Reserve Chair Kevin Warsh’s hawkish remarks at the Jackson Hole symposium, where he suggested that policymakers may need to increase borrowing costs if inflation does not ease to the central bank’s 2% target. This increased the probability of a rate hike at the Fed’s September meeting to over 60%, up from 41.4% a week ago.
Traders now anticipate a more aggressive stance from the Federal Reserve, with the September meeting becoming a focal point for market participants. Analysts at BofA Global Research noted that Warsh’s comments, coupled with recent mixed economic data, could raise the stakes for the upcoming monthly U.S. employment report, due on September 4.
The ambiguity in recent economic indicators has left the market uncertain, with Warsh stating that underlying trends have not meaningfully improved. Analysts warn that a failure to deliver a September hike could undermine the credibility gained from Warsh’s remarks.
Military clashes in the Middle East, particularly in the Strait of Hormuz, have disrupted oil shipments, driving up prices by nearly 1.71%. Energy stocks, including Halliburton and Valero Energy, saw gains, with Halliburton’s shares climbing 4.26% and Valero Energy’s rising 1.90%.
Outside the energy sector, all S&P 500 sectors except energy were under pressure. Utilities led the decline, falling 1.7% after an amendment to a Senate bill in California did little to alter the exposure of grid operators to wildfire liabilities. PG&E’s shares plunged 18%, marking its worst day in over six years.
Other chipmakers, including Intel and Texas Instruments, also saw gains, with Intel’s shares rising 1.21% and Texas Instruments’ gaining 0.9%. Nvidia outperformed megacap stocks, rising 0.28%. Market strategists continue to favor areas linked to structural growth themes such as artificial intelligence and digital infrastructure.
In other market movements, GameStop’s shares rose 4.5% after the company announced it would pay about 27% of a previously announced $1.4 billion debt exchange.
He (Warsh) took any chance of a (rate) cut off the table.
Thomas Kikis, Head of Markets, U.S. and Americas, at Standard Chartered
