Wall Street started September lower as rising Treasury yields and a jump in oil prices revived inflation concerns, with the Dow Jones Industrial Average falling 0.79%, the S&P 500 dropping 0.71% and the Nasdaq Composite losing 1.03%.
The Dow fell 418.97 points to 52,766.93, while the S&P 500 shed 54.67 points to 7,631.47. The Nasdaq dropped 271.11 points to 26,099.77.
The sell-off came as renewed hostilities in the Middle East pushed crude prices higher and global bond yields climbed to multiyear highs, adding to expectations that central banks may have to keep monetary policy tighter for longer.
The benchmark US Treasury yield also continued to rise after reaching a 19-month high on Monday.
“Following Kevin Warsh’s hawkish comments on Friday, we have strikes in Iran and oil is higher,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.
“It is the perfect cocktail for a risk-off day in a market that is trading near all-time highs.”
Investors were also facing the historically weak September trading period. September is the only month since 1926 to record a negative average return, according to Fisher Investments, citing data from Finaeon.
“September is the worst month historically and by a large margin. Particularly in midterm election years, this tends to be the point in the calendar where political anxiety and uncertainty start to weigh on equity markets,” Mayfield said.
Geopolitical tensions intensified after the US launched another barrage of airstrikes against Iranian targets around the Strait of Hormuz.
The escalation followed remarks by Treasury Secretary Scott Bessent that Washington would probably announce new bank sanctions against Iran, which he said were intended to “economically asphyxiate” Tehran’s leadership.
Iran, meanwhile, warned that it would prevent oil exports from the Gulf, adding another layer of uncertainty for energy markets.
Fed Rate Hike Bets Rise
The latest developments have also shifted expectations for the Federal Reserve’s September meeting.
Markets are now pricing in a 68.2% probability of a 25-basis-point rate hike at the meeting, up sharply from 39.6% a week earlier, according to CME’s FedWatch tool.
“We have a very, very hawkish Fed, and they absolutely want to raise rates,” said Jay Hatfield, portfolio manager at InfraCap in New York.
“They want to demonstrate their independence from the administration.”
Economic data added to the cautious mood, with the US Labor Department’s JOLTS report showing weaker job market churn than expected.
Purchasing Managers’ Index data also pointed to slowing factory activity, while residential construction spending fell. The reports highlighted continued concerns over high prices, supply constraints, tariffs and geopolitical uncertainty.
Within the S&P 500, energy was the strongest-performing sector as higher crude prices lifted oil-related stocks. Consumer discretionary recorded the biggest percentage decline.
The Dow Jones Transportation Average, often viewed as a gauge of economic health, fell 2.5%.
Semiconductor stocks also came under pressure, with the Philadelphia Semiconductor Index declining 2.1% as every constituent ended the session lower.
Market breadth reflected the broad-based sell-off. On the New York Stock Exchange, declining stocks outnumbered advancing issues by 2.8 to 1, with 143 new highs and 410 new lows.
The Nasdaq recorded 1,258 advancing stocks against 3,523 decliners, also giving a 2.8-to-1 ratio. The S&P 500 posted nine new 52-week highs and 13 new lows, while the Nasdaq Composite recorded 30 new highs and 161 new lows.
Trading volume stood at 14.38 billion shares across US exchanges, below the 15.35 billion average over the past 20 trading sessions.
Reuters
