US stocks: Wall Street ends lower due to higher yields, rising oil prices

[NEW YORK] US stocks extended their slide on Tuesday (Sep 1), as the global bond selloff deepened and crude prices spiked amid fading hopes for a near-term solution to the US-Israeli war with Iran.

All three major US stock indexes began the month on a sour note, closing decisively lower as rising hostilities in the Middle East drove up oil prices.

Global sovereign debt yields rose to multiyear highs as markets increased their bets that central banks will need to hasten their interest rate hikes.

The benchmark US Treasury yield continued to edge higher after reaching a 19-month high on Monday.

“Following Kevin Warsh’s hawkish comments on Friday, we have strikes in Iran and oil is higher,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky, referring to the Federal Reserve chair. “It is the perfect cocktail for a risk-off day in a market that is trading near all-time highs.”

Seasonal weakness could also be weighing on investor sentiment. September is the only month with a negative average return since 1926, according to Fisher Investments, which cited data from Finaeon.

“September is the worst month historically and by a large margin. Particularly in midterm election years, this tends to be the point in the calendar where political anxiety and uncertainty start to weigh on equity markets,” Mayfield said.

The US launched a new barrage of airstrikes against Iranian targets around the Strait of Hormuz following Treasury Secretary Scott Bessent’s remarks that Washington will probably announce new bank sanctions against Iran to “economically asphyxiate” Teheran’s leadership. Iran warned it would prevent oil exports from the Gulf.

Hawkish Fed

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US stock indexes open lower as high yields, oil prices dent sentiment

The ramp-up of hostilities drove crude prices higher, further exacerbating inflation fears just days after Warsh said he would bring price growth back to the central bank’s target.

Financial markets are pricing in about a 68.2 per cent likelihood that the Fed will implement a 25-basis-point rate hike at the end of its September policy meeting, up from 39.6 per cent a week ago, according to CME’s FedWatch tool.

“We have a very, very hawkish Fed, and they absolutely want to raise rates,” said Jay Hatfield, portfolio manager at InfraCap in New York. “They want to demonstrate their independence from the administration.”

The US Labor Department’s Jolts report showed jobs market churn slowing, while Purchasing Managers’ Index data suggested factory activity is losing momentum and spending on residential construction is falling.

Each report points to high prices, supply constraints and uncertainties arising from tariffs and geopolitical strife.

The Dow Jones Industrial Average fell 418.97 points, or 0.79 per cent, to 52,766.93, the S&P 500 lost 54.67 points, or 0.71 per cent, to 7,631.47 and the Nasdaq Composite dropped 271.11 points, or 1.03 per cent, to 26,099.77.

Of the 11 major sectors in the S&P 500, energy led the gainers with a boost from crude prices. Consumer discretionary suffered the largest percentage loss.

The Dow Jones Transportation Average, widely viewed as a barometer of economic health, was among the session’s biggest laggards, sliding 2.5 per cent.

The Philadelphia SE Semiconductor Index dipped 2.1 per cent, with every single constituent of the index losing ground on the day.

Declining issues outnumbered advancers by a 2.8-to-1 ratio on the NYSE. There were 143 new highs and 410 new lows on the NYSE.

On the Nasdaq, 1,258 stocks rose and 3,523 fell as declining issues outnumbered advancers by a 2.8-to-1 ratio.

The S&P 500 posted nine new 52-week highs and 13 new lows while the Nasdaq Composite recorded 30 new highs and 161 new lows.

Volume on US exchanges was 14.38 billion shares, compared with the 15.35 billion average for the full session over the last 20 trading days. REUTERS