Dow Falls 374 Points After U.S. Strikes Iran on Sunday
Oil prices jumped and Treasury yields rose after renewed hostilities, though all three major U.S. indexes still ended August higher.
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Monday's Selloff
The Dow Jones Industrial Average, an index of 30 large U.S. companies, fell 374.09 points, or 0.7%, to close at 53,185.90 on Monday. The S&P 500 slipped 0.33% to 7,686.14 and the Nasdaq Composite shed 0.12% to 26,370.89.
CNBC reported that the Dow was dragged down by losses in Goldman Sachs and Alphabet.
The declines followed the resumption of fighting between the United States and Iran. U.S. Central Command confirmed to MS NOW that American forces struck two rocket launchers on Iran's Larak Island on Sunday, the first publicly acknowledged U.S. strike on Iranian positions since late July. Iranian state media reported that Tehran retaliated by attacking U.S. bases in Jordan.
Oil and Interest Rates
Crude prices rose after the hostilities resumed. U.S. West Texas Intermediate oil settled 2.83% higher at $85.76 a barrel, while Brent crude, the global benchmark, settled up 2.71% at $90.49. Longer dated Treasury yields rose alongside oil.
The Globe and Mail reported that the closure of the Strait of Hormuz, a key shipping route, is fuelling fears that energy costs could feed broader inflation and force the U.S. Federal Reserve to raise interest rates. According to CME's FedWatch tool, markets are pricing in more than a 65% chance of a quarter point rate hike at September's policy meeting.
That publication also cited Federal Reserve Chair Kevin Warsh's hawkish tone at the Jackson Hole Symposium on Friday. "If they do not hike rates in September, I think you will see a dramatic reaction in the markets," said Paul Nolte of Murphy & Sylvest.
August in Context
Despite Monday's drop, all three major U.S. indexes finished the month higher. The Dow gained more than 1% for its fifth consecutive monthly advance and its 15th positive month out of the past 16, according to CNBC. The S&P 500 and Nasdaq rose 2.6% and 3.9% respectively, their first monthly gains since May.
Technology led the way. The S&P 500 tech sector finished up more than 6%, with Nvidia climbing about 10%, Microsoft gaining more than 9% and Micron Technology advancing more than 16%. Both the S&P 500 and the Dow hit all time highs earlier in August.
Tom Hainlin, national investment strategist at U.S. Bank Asset Management, called oil's current levels "a little high" but not damaging. "The world's got enough oil for what it needs, and $80 to $90 is not so restrictive that it collapses the economy," he said, adding that above $100 a barrel would become "pretty prohibitive". Iranian President Masoud Pezeshkian said Tehran is still seeking a negotiated solution. Whether the Fed will in fact raise rates in September is not yet known.
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