US equities kicked off September with a broad selloff on Tuesday, as a surge in crude prices and rising global bond yields stoked fresh inflation concerns and reinforced expectations for another Federal Reserve rate hike. The Dow Jones Industrial Average dropped 419.02 points, or 0.79%, to settle at 52,766.88. The S&P 500 slid 0.71% to 7,631.47, while the Nasdaq Composite fell 1.03% to 26,099.77.
Oil rally fuels inflation worries
Oil prices climbed sharply after the US launched new airstrikes against Islamic Revolutionary Guard Corps targets in Iran, intensifying geopolitical tensions in the region. West Texas Intermediate crude jumped 5.2% to close at $90.22 per barrel, while Brent futures advanced 4.6% to $94.65. The escalation follows a reported attack on a tanker in the Strait of Hormuz, raising concerns about potential supply disruptions that could keep energy prices elevated and add to inflationary pressures.
Energy was the best-performing sector among the 11 major S&P 500 groups, benefiting from higher crude prices. In contrast, the Dow Jones Transportation Average lagged, and all constituents of the Philadelphia Semiconductor Index ended in negative territory.
Global bond yields climb, Fed hike odds rise
Government bond yields continued their upward march across major economies, adding pressure on equities. The US 10-year Treasury yield reached levels not seen since January 2025, while Japan's 10-year yield hit its highest point since August 1996. Germany's benchmark yield also touched a high not observed since 2011.
Investors are increasingly pricing in a rate increase at the Fed's September meeting. According to CME's FedWatch tool, the probability of a 25-basis-point hike jumped to roughly 68%, up from 39.6% a week earlier. The shift reflects concerns that sustained oil price gains could keep inflation above the central bank's target.
Recent economic data has been mixed. The Labor Department's JOLTS report showed slower labor-market churn, while manufacturing activity weakened and residential construction spending declined. At the same time, price pressures remain persistent, compounded by tariff uncertainties and geopolitical risks.
Seasonal and geopolitical headwinds
September has historically been the weakest month for stocks, with average returns lower than any other month since 1926, according to data cited by Fisher Investments. The renewed US-Iran conflict adds another layer of uncertainty, as Iran has warned it could hinder oil exports from the Gulf, and the US has signaled possible additional sanctions.
Market participants are now looking ahead to the August nonfarm payrolls report due Friday, along with other economic indicators, for clues about the Fed's next move. With oil prices climbing and bond yields rising, investors remain sensitive to any signs that inflation could stay elevated.
The combination of geopolitical risks, tighter financial conditions, and monetary policy uncertainty weighed heavily on stocks as the new month began. For more on the oil market's recent moves, see oil's surge on US-Iran strikes. Also, check our analysis on sticky core PCE inflation and Brent's rebound risk.
This article is for informational purposes only and does not constitute financial advice.
