And for the global stock markets were under pressure on Monday as renewed geopolitical tension in the Middle East caused oil prices to rise and prompted investors to reassess interest rates. The S&P 500 Index fell 0.3 percent, while the S&P 500 Index slipped 0.3 percent, but still managed to have the best August performance since 2021.
The Nasdaq 100 Index gained 0.1 percent on Monday and finished August with a 4.2 percent rise, ending a two-month losing streak. Nine of the 11 major sectors of the S&P 500 had dropped, with communication services and utilities accounting for the biggest losses.
Oil prices soared on Middle East tensions
Energy stocks bucked the market decline as crude prices shot higher. Energy stocks in the S&P 500 were the best performers of the day with a 2.1 percent gain.
But as a result, US oil prices rose about 3 percent to $86 a barrel as the US and Iran exchanged strikes for the first time in about a month. The escalation added to fears that further military action could disrupt energy supplies and keep inflationary pressures high.
That lifted oil companies. Chevron Corp. gained 2.1%, while ConocoPhillips advanced 1.6%. Trump also threatened Iran with further attacks, adding further uncertainty to the geopolitical situation.
The travel-related stocks moved in the opposite direction as fuel costs are a big expense for airlines and cruise operators. Royal Caribbean Cruises, Carnival Corp. and Norwegian Cruise Line’s stock fell as investors worried about the price of fuel and the effect that higher energy prices would have on customers.
Treasury yields rise as rate-hike bets grow
The jump in oil prices also tempered expectations for U.S. monetary policy.
Higher energy prices can increase inflationary pressure, and as a result, the Federal Reserve will find it more difficult to ease monetary policy. Investors are therefore watching inflation and employment data closely for signs of how policymakers may respond.
Tom Essaye, founder of The Sevens Report newsletter, said that there were no major economic reports or Federal Reserve speakers scheduled for Monday, leaving geopolitics as the primary market driver.
If there is a war between the US and Iran, investors will be watching. A worsening of the geopolitical environment could put more pressure on stocks and Treasury yields.
September brings fresh market risks
As August ended, investors looked forward to September. September is typically one of the weaker months for US equities.
Wall Street is now assessing several risks— whether the artificial-intelligence-driven rally can continue, whether inflation will remain sticky and whether interest rates could rise.
The market will look to Friday’s jobs report for further clues on the Fed’s next policy move. Investors took some hawkish comments from Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium as a sign that the Federal Reserve is not interested in the long-term outlook.
Interest rate swaps are indicating an approximately 70% probability of a 25-basis-point rate hike next month, reflecting growing concern about persistent price pressures.
PG&E and Edison International plunge
The market had many stocks move in the day.
PG&E Corp. shares dropped 20 percent, the biggest one-day drop since March 2020. Edison International dropped 23 percent, the worst market decline since April 2001.
The decline came after California legislators passed legislation to update the state’s wildfire response framework. Investors had to deal with the threat to publicly traded utilities and wildfire liability.
PG&E and Edison International were the two weakest performers on the S&P 500 on Monday.
Tesla leads Magnificent Seven gains
Tesla was one of the best performers in the S&P 500, up 5.5%. The electric vehicle maker was one of the strongest performers among the so-called Magnificent Seven stocks ahead of its Cybercab launch in Austin, Texas on Thursday.
The other major technology stocks had a more mixed session. Amazon.com and Alphabet declined more than 2 percent, making them among the biggest laggards in the group.
Meanwhile, Nvidia rose 1.5 percent, recovering some ground after losing nearly 5% on Friday.
AI trade remains a key market driver
Even as Monday’s overall weakness continued, technology stocks remained one of the strongest themes throughout August.
The S&P 500 technology sector gained more than 6% during the month. Microsoft rose 9.2%, while Nvidia and Micron Technology gained approximately 10% and 16%, respectively.
The robust performance is a good signal that artificial intelligence-related investment is still strong in the United States. But investors are wondering if the AI rally will continue to surge as the market remains pricey, interest rate expectations are changing, and economic conditions get more uncertain.
What Wall Street is watching next
The economic calendar is busier as the new month begins. Investors will have manufacturing and services-sector data during the week, providing fresh information about the economy.
Corporate earnings will also be a focus, particularly results from AI and technology companies. Broadcom will also report earnings, while Dell Technologies, Hewlett Packard Enterprise, and Ciena are among the others to report earnings this week.
In other words, with oil prices, geopolitical developments, Treasury yields, and Federal Reserve expectations in mind, Wall Street enters September in a very volatile market context.
Investors will watch whether the strong August rally continues or whether rising inflation risks and higher interest rate expectations trigger a broader pullback in September.
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