Stocks fell on Wall Street as the price of crude oil rose back above US$100 (NZ$171.25) a barrel amid further escalation in the US war with Iran.
The S&P 500 index fell 0.4%. The Dow Jones Industrial Average fell 297 points, or 0.6%, as of 2.01pm (local time). The Nasdaq composite fell 0.6%.
The losses were broad, with retailers among the companies leading the market lower. Amazon fell 1.9% and Starbucks fell 1.2%. Nearly every sector within the benchmark S&P 500 lost ground, but oil companies pushed higher. Exxon Mobil rose 2.5% and Chevron rose 1.7%.
Oil prices drove much of the action on Wall Street. The US destroyed five Iranian tankers on Wednesday in a series of attacks between the two nations. The conflict that began in February has essentially shut down traffic in the Strait of Hormuz, where a fifth of the world’s oil supply passed before the war began.
The price of Brent crude, the international standard, rose 3% to US$100.87 (NZ$172.74) a barrel. It marks the first time the price surpassed US$100 (NZ$171.25) a barrel since July.
The jump in oil prices over the course of the war has fuelled already high inflation. Gasoline prices in the US are up about 32% from a year ago to US$4.22 (NZ$7.23) per gallon. Higher fuel prices cut into household budgets directly when it comes to the cost of driving, but they also indirectly raise prices for goods because of higher shipping costs.
The price of diesel, which can have an outsized impact on consumers because it is used in shipping and production, hit an all-time high Friday and has continued to climb since. The average price for a gallon reached US$5.94 (NZ$10.17) overnight and is now 9 cents higher than it was Friday.
Inflation was already stubbornly high when the US started its war against Iran because of the ongoing US trade war with much of the world. That trade war is also heating up, especially between the US and its close ally and trade partner Canada.
Wall Street will get more updates this week on inflation, starting with a look at prices at the wholesale level Friday with the release of the Producer Price Index for August. It measures prices businesses pay for goods before they reach customers. That report will be followed up with the release of the Consumer Price Index, or CPI, for August, which shows the more direct price impact for households.
The latest reports are expected to show that the rate of inflation remains above 3%. That has been an issue for the Federal Reserve, which is aiming to hold inflation at a target rate of 2%. The central bank has been holding rates steady, but Wall Street is leaning toward a 62% chance that it will raise its benchmark interest rate at its meeting next week, according to data from CME Group.
Higher interest rates make borrowing more expensive. The goal of raising interest rates is to slow the economy and cool inflation.
Rising Treasury yields in the bond market were also weighing down stocks on Wall Street.
The US Treasury Department said it would buy back up to US$6 billion (NZ$10.2 billion) in long-term debt. That follows an announcement in August previewing plans for an unusually large buyback in an effort to contain rising yields, which make it more expensive for US companies to borrow money and also weigh down other investments, such as stocks.
Bond yields had been holding steady prior to the announcement, but gained ground shortly after.
“The simplest version here is that market interventions have a long history of not working very well," said Guy LeBas, chief fixed income strategist at Janney Montgomery.
The yield on the 10-year Treasury, which tends to impact mortgage rates, rose to 4.85% — its highest point since late October of 2023 — before easing to 4.83% from 4.80% late Tuesday. The yield on the 2-year Treasury, which tends to track expectations for Fed moves on interest rates, rose to 4.41% from 4.39% late Tuesday.
Bond yields have an inverse relationship to prices. Yields rise as bond prices fall. Rising yields signal that investors are demanding a higher return from Treasurys.
Elsewhere on Wall Street, shares of Meta Platforms rose 6.3% as the parent company of Instagram and Facebook launched a personal artificial intelligence agent, Muse, for people 18 and over who are looking for help with day-to-day tasks like schedules and shopping.
Markets in Europe fell while markets in Asia closed mixed.
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