US stocks fall as higher oil prices, Treasury yields weigh

[NEW YORK] US stocks fell on Monday (Sep 28) as oil prices and Treasury yields increased, with investors weighing uncertainty over the prospects for an Iran war peace deal and the impact on the US Federal Reserve’s interest rate path.

Crude prices had jumped after US President Donald Trump rejected a peace deal from Iran but pared gains on expectations that Qatari mediators would hold talks with the two countries to find a possible deal.

After retreating from highs at the start of the month, oil prices have accelerated higher in recent days as hopes that a peace deal may be on the horizon have diminished.

The rising prices of crude and diesel fuel have fanned inflation worries and pushed US Treasury yields higher, along with comments from Fed officials indicating that more rate hikes might be needed if price pressures fail to moderate after the central bank raised interest rates by 25 basis points earlier this month.

“Iran is driving oil prices, and oil prices are driving inflation, and inflation is driving interest rates,” said Jack Ablin, chief investment strategist and founding partner at Cresset Capital Management in Chicago.

“We are getting to a point now where interest rates are looking pretty attractive relative to equities, which is really the first time in close to 20 years, so that is something that we are certainly paying attention to.”

“It is less of an earnings story right now than it is a valuation story,” he said. “When you get an asset class that has been fighting with one arm tied behind its back for 20 years, now all of a sudden it is looking pretty competitive.”

Wall Street indices fall

The Dow Jones Industrial Average fell 347.11 points, or 0.67 per cent, to 51,481.51, the S&P 500 lost 59.72 points, or 0.77 per cent, to 7,683.69 and the Nasdaq Composite lost 248.34 points, or 0.92 per cent, to 26,820.38.

The decline for the S&P 500 was its largest daily percentage drop since Aug 20.

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Boeing shares tumbled 6.9 per cent as one of the biggest drags on the Dow after the US Federal Aviation Administration said it will delay certification of Boeing’s long-delayed 737 MAX 10 until a newly disclosed software issue is resolved.

Bucking the broader trend was a 1.6 per cent gain in Nvidia shares after the chip giant announced a US$150 billion share repurchase authorisation, the biggest-ever company share buyback.

Iran announced a peace proposal at last week’s United Nations General Assembly in New York, saying it had been relayed to the US through Qatari mediators. While Trump said on Saturday he had rejected the offer, he told media outlet Axios on Sunday that he expected US negotiators to continue talks this week.

Federal Reserve Governor Lisa Cook said on Monday she expects continued inflationary pressure in coming months stemming from artificial intelligence demand and higher oil prices, though she stopped short of saying more interest rate hikes will be needed.

Expectations for a rate hike from the Fed at its October meeting have climbed in recent days, in part due to economic data indicating the economy was growing at a solid pace.

Markets are currently pricing in a 70.3 per cent chance for an increase of at least 25 basis points at the central bank’s meeting next month, up from 57.6 per cent a week ago and 17.7 per cent a month earlier, according to CME FedWatch.

Several key economic releases are due this week, which could help shape the path of Fed policy, including a reading on inflation and the labour market, culminating in Friday’s government payrolls report.

Tesla shares slumped 3.9 per cent after brokerage JPMorgan lowered its price target on the stock, citing weak deliveries in the third quarter.

Declining issues outnumbered advancers by a 3.55-to-1 ratio on the New York Stock Exchange and by a 2.56-to-1 ratio on the Nasdaq.

The S&P 500 posted four new 52-week highs and 29 new lows while the Nasdaq Composite recorded 40 new highs and 249 new lows.

Volume on US exchanges was 16.71 billion shares, compared with the 16.85 billion average for the full session over the last 20 trading days. REUTERS