Dow opens 470 pts lower as oil prices rise, markets brace for key inflation data

US stocks opened lower on Tuesday as renewed Middle East hostilities pushed oil prices higher, while investors prepared for key inflation data later this week. 

The moves come after a volatile period in which markets reassessed expectations for Federal Reserve policy following comments from Fed Governor Christopher Waller and stronger-than-expected August employment data.

The Dow Jones Industrial Average fell 471 points while the S&P 500 slipped 0.16% and the Nasdaq Composite declined 0.09%.

The shortened trading week will be dominated by the Producer Price Index on Thursday and the Consumer Price Index on Friday. 

Markets are currently pricing in about a 58.4% probability of a rate hike at the Federal Reserve’s September meeting, according to the CME FedWatch tool.

Middle East tensions push oil prices higher

The ongoing US-Iran conflict remained a major concern for investors as renewed military activity raised the prospect of disruptions to energy supplies. 

Yemen’s Tehran-backed Houthis attacked energy facilities and cities in Saudi Arabia, while Israel carried out strikes in southern Lebanon.

Shipping traffic through the Strait of Hormuz also slowed, with Iran threatening retaliation against further US attacks. 

The developments have added to concerns about the potential impact of higher energy prices on global inflation.

Brent crude futures rose 1.64% to $98.59 a barrel in one market reading, reaching their highest level since July 24. 

Separately, Brent futures were reported up 2.3% at $99.22, while West Texas Intermediate crude gained 3.3% to $94.54.

Energy stocks benefited from the move, with Marathon Petroleum and Occidental Petroleum gaining in trading. 

Higher oil prices, however, could create additional inflationary pressure and complicate the Federal Reserve’s policy outlook.

Treasury yields also remained elevated. 

The benchmark 10-year Treasury yield rose 0.42 basis points to 4.7882% on Tuesday, while yields had recently reached their highest levels in years. 

Higher risk-free yields can make equities relatively less attractive to investors.

Inflation data takes center stage for Fed outlook

Investors are now awaiting this week’s inflation figures for further clues about the Federal Reserve’s next policy decision. 

The data will follow August’s stronger-than-expected jobs report, which showed the US economy added 162,000 jobs while the unemployment rate remained at 4.1%.

The stronger labor-market reading increased expectations for a September rate hike, while Waller had previously indicated that he could support keeping rates unchanged if inflation pressures continued to ease.

The inflation reports could therefore shift market expectations again, particularly if higher energy prices begin to feed into broader price pressures. 

Markets will also monitor how Federal Reserve Chair Kevin Warsh responds to the latest economic data.

Tech stocks show mixed performance

The broader market remained mixed across sectors in trading. Chip stocks gained amid continued optimism surrounding artificial intelligence. Intel rose 5.54%, while Nvidia was unchanged at 0.04%.

Cryptocurrency-related stocks moved lower as Bitcoin retreated from the $80,000 level. Coinbase declined 3%, while Strategy fell 5%.

Investors are also facing renewed trade tensions between the US and Canada. 

Canadian retaliatory tariffs on about $20 billion of US goods were set to take effect Tuesday, while President Donald Trump said Canadian aircraft manufacturer Bombardier would not be able to sell in the US unless Canada begins producing its products domestically.

With oil prices rising, inflation data approaching and trade tensions resurfacing, investors face several potential sources of volatility during the shortened trading week.