Oil Price Surge Weighs on US Stocks, Inflation Fears Mount

US stocks took a hit on Tuesday as oil prices continued to rise following recent fighting in the Middle East. The S&P 500 dropped 0.6%, while the Dow Jones Industrial Average plummeted by 628 points, or 1.2%. The Nasdaq composite also declined by 0.3% due to the pressure from increasing oil prices.

Brent crude briefly reached a high of $99.46 per barrel before settling at $97.92, up 0.9%, which is its highest level since early July. This surge in oil prices has exacerbated concerns about inflation, particularly with two key reports on inflation scheduled for release this week.

The wholesale inflation report, to be released on Thursday, is expected to show an acceleration to 5.4% from 7.4% in July. On Friday, the consumer price index will be released, which economists anticipate will reveal a slight easing of inflation to 3.3% from 3.4% in July.

The Federal Reserve's decision on interest rates is also looming, with traders giving a nearly 60% probability that the Fed will raise its federal funds rate at the conclusion of its next meeting on September 16. In the bond market, the yield on the 10-year Treasury rose to 4.79%, near its highest level since autumn 2023.