US stocks fall as Iran conflict lifts oil, inflation and Fed rate hike bets

US stocks opened lower on Monday as renewed military clashes between the US and Iran pushed oil prices higher and added to concerns about inflation.

The developments also increased uncertainty around the Federal Reserve’s interest-rate path ahead of its September meeting.

The Dow Jones Industrial Average fell 346 points, while the S&P 500 was almost unchanged and the Nasdaq Composite declined 0.52%.

The weakness comes as investors enter September, historically a challenging month for equities.

Markets are also reassessing the prospect of further monetary tightening following Federal Reserve Chair Kevin Warsh’s comments on inflation at the Jackson Hole symposium last week.

Oil prices rise as US-Iran tensions escalate

Military clashes between the US and Iran resumed in the Middle East, with disruptions around the Strait of Hormuz affecting oil shipments.

US Central Command confirmed that the US had struck two rocket launchers on Iran’s Larak Island.

The attack was the first publicly acknowledged US strike on Iranian positions since late July. Iranian state media reported that Tehran had responded by attacking US bases in Jordan.

The renewed hostilities sent oil prices higher. West Texas Intermediate crude traded more than 3% higher at above $86 a barrel, while Brent crude futures rose more than 3% to above $91 a barrel.

Energy stocks benefited from the move in crude prices. Halliburton and Valero Energy rose 3.04% and 1.84%, respectively, in trading.

Higher oil prices could add to inflation concerns at a time when investors are already focused on the Federal Reserve’s next policy decision.

Rate hike bets rise ahead of jobs report

Markets have increased expectations for a September rate hike after Warsh indicated that the Federal Reserve could raise borrowing costs if inflation does not move toward its 2% target.

CME FedWatch data showed traders pricing in nearly a 60% chance of a September rate increase, up from 41.4% a week earlier.

The outlook has become more uncertain following mixed inflation data. July consumer inflation showed relatively mild price pressures, while the Personal Consumption Expenditures reading came in hotter than expected.

The August employment report, due September 4, will therefore be closely watched. Investors will also receive manufacturing and services data during the week.

Nvidia fell 0.31% while AMD gained 0.6%.

Wall Street heads into September after strong August

The decline in futures follows a strong month for major US indexes.

The Dow was up 2.1% month-to-date and on track for its fifth consecutive monthly advance. The S&P 500 and Nasdaq Composite were up about 3% and 4%, respectively, putting both on course for their first monthly gains since May.

Technology stocks led the August advance, with the S&P 500 technology sector gaining nearly 6%. Nvidia rose more than 8%, while Microsoft and Micron Technology gained 10% and 13%, respectively.

However, inflation concerns have contributed to volatility, with Treasury yields reaching multi-year highs during the month. Elevated long-term yields remain a concern for markets.

Elsewhere, most crypto stocks moved higher, with Bitcoin trading below $78,000.

GameStop gained 4.8% after announcing that it would use cash on hand for about 27% of a previously announced $1.4 billion debt exchange, avoiding additional share dilution.