U.S. stocks fell Tuesday as escalating conflict in the Middle East pushed oil prices toward $100 a barrel, adding to inflation concerns and driving Treasury yields higher ahead of key U.S. inflation data and next week’s Federal Reserve meeting.
The S&P 500 fell about 0.5% in morning trading, while the Nasdaq Composite declined roughly 0.5%. The Dow Jones Industrial Average underperformed, dropping more than 1% as Wall Street reopened following the Labor Day holiday.
Brent crude climbed above $98 a barrel and briefly approached $100 after attacks on energy infrastructure in Saudi Arabia added to concerns about disruptions to Persian Gulf supplies. West Texas Intermediate traded above $93.
Oil Surge Revives Inflation Concerns
The latest increase in energy prices comes as fighting involving the United States and Iran continues to disrupt regional energy flows and shipping through the Strait of Hormuz.
Iran-backed Houthi forces attacked energy facilities in southern Saudi Arabia on Tuesday, causing fires and temporarily suspending some operations, according to Saudi authorities. The attacks increased concerns that disruptions could spread beyond Iranian exports to energy infrastructure elsewhere in the Gulf.
Brent has risen sharply from around $72 a barrel roughly two months ago, increasing pressure on transportation and other energy-sensitive costs.
Higher energy prices can feed into broader inflation, potentially complicating the Federal Reserve’s interest-rate decisions.
Markets are awaiting the U.S. Producer Price Index on Thursday and Consumer Price Index on Friday, the final major inflation reports before the Fed’s September meeting.
Treasury Yields Add Pressure
Bond yields also moved higher Tuesday, with the benchmark 10-year U.S. Treasury yield around 4.8%, close to its highest level since November 2023.
Higher Treasury yields can increase borrowing costs across the economy while also putting pressure on equity valuations, particularly for technology and other growth companies whose valuations are sensitive to interest rates.
Developments in Japan added another element to global bond markets. The yen has rallied sharply as investors increase expectations for further monetary tightening by the Bank of Japan, contributing to an unwinding of yen-funded carry trades.
The Japanese currency has gained nearly 4% over the past week, its strongest weekly advance since July 2024.
Technology Stocks Under Pressure
Interest-rate-sensitive technology shares were among the stocks facing pressure as investors weighed the combination of higher energy prices and elevated borrowing costs.
The moves come as large technology companies continue to raise substantial amounts of capital to finance artificial-intelligence infrastructure, including data centers, chips and computing capacity.
Oracle, however, moved higher ahead of its earnings report this week, standing out against broader weakness in the technology sector.
Tuesday’s market moves reflect the interaction of two major pressures facing investors: higher energy costs stemming from disruptions in the Middle East and elevated bond yields as markets reassess the path of global interest rates. U.S. inflation figures later this week will provide additional data on price pressures before the Federal Reserve’s next policy decision.
