US Stocks Tumble as Iran Conflict and Hawkish Fed Threaten Rate Hike
US stock indexes plummeted on Monday as oil prices surged due to military clashes between the US and Iran, fueling inflation concerns. The Dow Jones Industrial Average dropped 350.75 points, or 0.65%, to 53,209.24, while the S&P 500 shed 30.49 points, or 0.40%, to 7,681.27. The Nasdaq Composite lost 77.11 points, or 0.29%, to 26,325.31.
Fed Chair Kevin Warsh's hawkish remarks at the Jackson Hole symposium last week further contributed to the market's decline. Warsh suggested that policymakers may need to increase borrowing costs if inflation does not ease to the central bank's 2% target. This marked a significant shift in his tone, as he effectively ruled out any chance of a rate cut.
According to CME's FedWatch, there is now over a 60% chance of a rate hike at the Fed's September meeting, up from 41.4% just a week ago. Energy stocks were among the few gainers on Monday, rising as Brent crude prices jumped nearly 1.71%. However, utilities and most other sectors declined, with PG&E plummeting 18% after an amendment to a Senate bill did little to alleviate its exposure to wildfire liabilities.
Analysts at BofA Global Research warned that Warsh now faces pressure to deliver a September hike or risk undermining his credibility. With the US employment report due on September 4, the market will be closely watching for any signs of improvement in underlying trends.