Oil prices rose and Wall Street's major indexes fell on Monday after the United States struck Iranian missile launchers in the Strait of Hormuz. It was the first U.S. military strike on Iran in nearly a month and renewed concerns about the security of one of the world's most important energy supply routes.
As of 10:50 a.m. local time, the S&P 500 index was down 0.5%, the Dow Jones Industrial Average was down 361 points, or 0.7%, and the Nasdaq was also down about 0.5%, the Associated Press reported. The decline covered almost all sectors, while energy companies remained among the few gainers. Exxon Mobil shares rose about 2%, and Chevron – by 1.9%.
The main factor behind the market movement was the new rise in crude oil prices. The international Brent crude rose by 2.7% to $90.49 per barrel. Over the past month, its price has fluctuated in a wide range between $72 and $102, depending on expectations for the development of the conflict.
Additional tension was caused by the announcement by the United Arab Emirates that it had intercepted an Iranian drone over its waters. The Strait of Hormuz remains a critical point for the global oil market, as approximately one-fifth of global oil supplies pass through it. The military conflict has already limited traffic through the strait and contributed to higher transportation and energy costs.
The rise in energy prices has also put inflation in the spotlight again in the US. According to the AP, it remains above 3% - well above the Federal Reserve's 2% target. Higher fuel prices are weighing on household spending and consumer confidence, complicating the central bank's interest rate decisions.
Financial market expectations for further tightening of monetary policy have also strengthened. After firm signals from Federal Reserve Chairman Kevin Warsh, the probability of a key interest rate hike in September is estimated at over 60%, and Barclays is already forecasting two 25-basis-point hikes by the end of 2026.
The yield on two-year US Treasury bonds remained around 4.34%, compared to around 3.50% at the beginning of the year. The yield on 10-year notes rose to 4.76% from 4.73% at the end of Friday's session.
Investors are now turning their attention to US labor market data, which is due later in the week. The US economy unexpectedly shed 23,000 jobs in July, and previous data for May and June were revised down by a total of 103,000. Weaker new data could put the Federal Reserve in a difficult position – between the need to curb inflation and the risk of further weakening the labor market.
Individual companies were much more volatile. GameStop rose about 3.8% after a preliminary forecast of better results for the second quarter. Aon shares fell 7.1% after the company announced a deal to acquire insurance broker USI Insurance Services for $17 billion, including debt.
Trade was mixed in European and Asian markets, but the overall tone remained cautious. Reuters also reported pressure on global stocks and bonds due to rising oil prices and concerns that ongoing tensions in the Middle East could keep inflation high for longer.