NEW YORK – US stocks weakened on Aug 31, with Wall Street turning the page on a volatile month as a war-related jump in crude prices revived inflation fears and raised the likelihood of tighter monetary policy.
Spiking oil prices dampened investor risk appetite and sent benchmark US Treasury yields higher, as investors processed US Federal Reserve chairman Kevin Warsh’s hawkish tone on Aug 28 in his speech at the Jackson Hole Symposium.
Despite the broad sell-off, all three major US stock indexes posted monthly gains. The Nasdaq showed the largest percentage growth for August as the AI trade remained alive, despite recent weakness. The blue-chip Dow nabbed its fifth consecutive monthly advance.
“We heard from Warsh last week, and the odds now favour a rate hike in September,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.
“Throw that into the mix of continued hostilities in the Middle East.
“And the week before Labour Day, there’s a lot of people who are out of the office, so weird things can happen,” Tuz added.
“There was no reason to come into work today thinking it’s a great day to buy stocks.”
Iran’s President Masoud Pezeshkian said Tehran is still seeking a negotiated solution to the war, after days of renewed airstrike exchanges and mounting hostilities following US President Donald Trump’s implementation of costly economic sanctions.
The protracted impasse and the related closure of the Strait of Hormuz is fuelling fears that upward pressure on energy prices could metastasize into broader, systemic inflation that could force the Fed to hike interest rates as soon as September.
Financial markets are currently pricing in more than a 65 per cent likelihood of the central bank implementing a 25-basis-point rate hike at the conclusion of September’s monetary policy meeting, according to CME’s FedWatch tool.
“Investors are revisiting some of the comments that Warsh made at Jackson Hole as well and what that may mean for interest rates, what that may mean for inflation,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest, in Elmhurst, Illinois.
“If they do not hike rates in September, I think you will see a dramatic reaction in the markets because it’s been prepped now for quite some time that they’re going to raise rates.”
The Dow Jones Industrial Average fell 374.09 points, or 0.7 per cent, to 53,185.90, the S&P 500 lost 25.62 points, or 0.33 per cent, to 7,686.14 and the Nasdaq Composite lost 31.53 points, or 0.12 per cent, to 26,370.89.
Among the 11 major sectors in the S&P 500, energy shares enjoyed the largest percentage gains, with a boost from surging crude prices. Utilities lagged on the heels of an amendment to a Bill in the California senate, which did little to solve grid operators’ exposure to wildfire liabilities.
Within the energy space, Halliburton and Valero Energy both advanced 1.9 per cent. In utilities, California’s PG&E plunged 20.1 per cent, its largest percentage loss in over six years.
In other movers, GameStop’s shares rose 2.9 per cent after the company said it would pay about 27 per cent of a previously announced US$1.4 billion debt exchange through cash on hand instead of issuing new stock, preventing further share dilution.
Declining issues outnumbered advancers by a 1.95-to-1 ratio on the NYSE. There were 112 new highs and 234 new lows on the NYSE.
On the Nasdaq, 1,859 stocks rose and 2,931 fell as declining issues outnumbered advancers by a 1.58-to-1 ratio.
The S&P 500 posted 5 new 52-week highs and 11 new lows while the Nasdaq Composite recorded 40 new highs and 146 new lows.
Volume on US exchanges was 15.65 billion shares, compared with the 15.58 billion average for the full session over the last 20 trading days. REUTERS
