U.S. stocks fell Tuesday as oil prices pushed toward $100 a barrel, driven by escalating conflict in the Middle East and fresh trade friction with Canada. The Dow Jones Industrial Average lost 511 points, or 0.7%, while the S&P 500 slid 0.2% and the Nasdaq Composite edged down 0.1%. Trading resumed Tuesday after Monday's Labor Day closure.
Brent crude futures rose to their highest level since July, climbing above $99 a barrel after Iran-backed Houthi militants in Yemen struck energy infrastructure in Saudi Arabia. West Texas Intermediate futures settled at $94.54, a gain of 3.3% on the session. Oil prices have risen for three straight days as the U.S.-Iran war continues.
Rising energy costs are translating into upward pressure on bond markets, with traders increasingly anxious that persistently high oil prices could stoke a new wave of inflation. The 10-year U.S. Treasury yield briefly crossed 4.8% earlier in the session.
"Brent crude is at a six-week high, with apparent moves toward a deal between Iran and Oman to manage the flow of some shipping through the Strait of Hormuz merely underlining Tehran's control of the waterway," AJ Bell's head of markets, Dan Coatsworth, wrote in a Tuesday note. "Investors will have a laser focus on U.S. inflation data out later this week to see if the impact of rising energy prices is starting to feed into broader inflationary pressures."
The Federal Reserve convenes next week, and CME Group's FedWatch tool shows traders assigning roughly 60% odds to a quarter-point rate increase at that gathering. Inflation readings at the wholesale level are expected Thursday, followed by consumer price data on Friday. Economists expect the Friday consumer price index report for August to show headline inflation held at an annual rate of 3.4%, according to The Wall Street Journal.