Oil Price Surge and Fed Decision Spark Caution in Markets

Oil prices have surged above $107 per barrel after fresh attacks on Saudi oil infrastructure and ships in the Gulf, adding to concerns over supply. Dan Niles, founder of Niles Investment Management, has turned cautious on US equities due to rising oil prices and higher bond yields.

Niles is watching three key developments this week: the reaction of stocks to higher oil prices and interest rates, growing calls from AI executives to slow the development of advanced models, and the Federal Reserve's September 16 policy decision. He expects Fed Chair Kevin Warsh to raise rates by 25 basis points and maintain a hawkish tone.

The US 10-year Treasury yield is already over 5%, a level investors have increasingly identified as a potential threat to equities. Niles believes the market historically performs poorly during rate-hiking cycles, while the bond market is already pricing in further increases.