On Wednesday, stock prices took a downturn, and Treasury yields increased as oil prices soared past $100 a barrel, raising fears about inflation and a possible Federal Reserve interest rate hike.
The Dow Jones Industrial Average fell by 367 points—about 0.7%—around 10:00 a.m. ET, with the S&P 500 and Nasdaq both dropping 0.3%.
Brent crude futures surged 2.9% to $100.77 a barrel on Wednesday morning, marking the first time since July that prices surpassed this level, while West Texas Intermediate also rose by 2.9%, reaching $95.73.
Concerns about an ongoing conflict in the Middle East, which could keep energy prices high and further inflate costs, prompted the US 10-year Treasury yield to briefly rise to 4.806%, exceeding the closely monitored 4.8% threshold. The 2-year Treasury yield climbed to 4.415% as well.
Lawrence Gillum, the chief fixed income strategist for LPL Financial, noted that the swift sell-off in bonds indicates that traders are gearing up for an interest rate increase at the Fed’s Sept. 16 gathering.
In a memo, he stated, “A gap of around 60 to 85 basis points between the federal funds target range and the 2-year Treasury yield suggests that the market anticipates the next action will be a hike rather than a cut.”
Yet, he also mentioned, “We still think the bar for a hike is higher than a Fed on hold, although with probabilities hovering near 50%, the market pressuring the Fed into action isn’t out of the question.”
Renewed violence related to the war with Iran has raised fears that energy supply issues could persist for several more months, especially concerning the Strait of Hormuz, which is crucial for transporting 20% of the world’s oil.
On Tuesday evening, US Central Command reported that American forces had taken out five Iranian oil tankers close to Kharg Island, an important energy hub for Tehran, in an effort to impact the country’s economy.
Meanwhile, domestic gasoline prices have stubbornly climbed, recording an average of $4.22 per gallon as of Wednesday, according to AAA.
Major stock indexes also dipped on Tuesday as the week resumed after the Labor Day holiday, alongside a rise in Treasury yields.
Investors and economists are now closely watching for new inflation figures, with the Producer Price Index set to be released on Thursday and the Consumer Price Index expected on Friday.
This upcoming data will be the final information the Federal Reserve reviews before making its interest rate decision the following week, a significant choice that could influence the midterm elections, particularly as Americans grow more dissatisfied with rising costs.
The conflict with Iran has now extended into its sixth month, with tensions continuing to escalate.
Energy Secretary Chris Wright has expressed concerns that a nuclear agreement with Tehran may be out of reach.
Conversely, officials from the Trump administration have maintained that once conflicts overseas subside, oil and gasoline prices will rapidly decline.
Treasury Secretary Scott Bessent recently suggested that oil prices could plummet to between $40 and $50 a barrel if access through the Strait of Hormuz is fully restored, while President Trump mentioned that gas prices could fall to $3 and eventually to $2 a gallon “when we WIN the war with Iran.”
