Bond yields rose and stocks fell on Monday as oil prices jumped more than 2%, with a resumption of military clashes between the U.S. and Iran adding to worries about inflation.
U.S. President Donald Trump was quoted on Monday as promising to "hit them hard" after Iran launched missiles overnight at two U.S. air bases in Jordan in response to a U.S. attack on Iran's Larak Island.
Brent crude futures rose $2.39, or 2.71%, to settle at $90.49 a barrel. U.S. West Texas Intermediate crude climbed $2.36, or 2.83%, to settle at $85.76. Brent rose during the session to its highest since August 25.
Wall Street, global stocks and currencies
On Wall Street, the Dow Jones Industrial Average fell 374.09 points, or 0.70%, to 53,185.90, the S&P 500 fell 25.62 points, or 0.33%, to 7,686.14 and the Nasdaq Composite fell 31.53 points, or 0.12%, to 26,370.89.
"It's a market now that's really beginning to feel the weight of climbing yields," said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
In addition, he said, the market is about to enter what is "usually a rather tough month for stocks."
September has historically been a weak month for stock market performance.
The pan-European STOXX 600 was down 0.6% at 651.1 points on the day, with trading volumes subdued as London markets were closed for a bank holiday.
MSCI's gauge of stocks across the globe fell 3.94 points, or 0.34%, to 1,149.22.
Despite the day's losses in stocks, major indexes posted gains for the month of August. The Nasdaq climbed 3.9% for the month as the AI trade remained alive, despite recent weakness. The blue-chip Dow nabbed its fifth consecutive monthly advance. The MSCI global index is up about 2.6% for August.
"There are definitely dark clouds out there. Whether the storm hits us or not is yet to be determined," said Adam Sarhan, chief executive of 50 Park Investments in New York.
Inflation and rate hikes are among the risks, but so far the market has held up, he said.
Friday's U.S. August payrolls report and consumer price data due on September 11 will be key to determining whether the Fed moves as early as next month.
Economists expect payrolls to increase by 58,000 after July's shock decline of 23,000, with unemployment holding at 4.1%.
The dollar index was down 0.24% at 99.43 after hitting 99.73 on Friday, its strongest since August 17. The index remains on track for a second consecutive monthly decline after U.S. Treasury bond-buyback plans earlier in the month revived debasement trades.
The yen rose on Monday after Treasury Secretary Scott Bessent said he believes Japan's government and central bank will take action that strengthens the yen, suggesting a strong chance of a Bank of Japan interest rate hike in September.
The yen strengthened 0.2% to 159.77 per dollar, after sliding beyond 160 per dollar on Friday.
Spot gold fell 0.1% to $4,448.30 an ounce.
Rate-hike expectations and Treasury yields increase
That kept alive the risk of further interest rate increases from major central banks. Federal Reserve Chairman Kevin Warsh's speech at Jackson Hole on Friday boosted bets on a September Fed interest rate rise.
Fed funds futures traders are now pricing in 65% odds of a September rate hike, up from around 35% before Warsh’s comments on Friday. The European Central Bank is widely expected to hike rates when it meets on September 9 and 10.
U.S. Treasury yields rose and the dollar edged lower as expectations of a September Fed rate hike increased.
The yield on the benchmark U.S. 10-year Treasury note was up 3.6 basis points at 4.758% after earlier touching 4.768%, highest since January 15, 2025. For the month, the yield is up 1.5 basis points.
Earlier, German and French 2-year bond yields also climbed.
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