Wall Street was on course to open lower on Wednesday as another rise in crude oil prices added to concerns over inflation and the outlook for U.S. interest rates.
Brent crude climbed through $100 a barrel for the first time since July, while U.S. crude futures gained around 3% following further military exchanges involving the U.S. and Iran.
U.S. forces destroyed five Iranian crude carriers after Iran’s Islamic Revolutionary Guard Corps targeted a U.S. Navy warship with ballistic missiles.
U.S. Central Command said the tankers formed part of a multibillion-dollar network used to finance the IRGC and regional groups aligned with Tehran.
Iran subsequently launched missiles targeting U.S. military positions in Jordan, adding to concerns about the possibility of a broader regional conflict.
Oil rally raises questions over Fed policy
The latest increase in energy prices has brought inflation risks back into focus ahead of the Federal Reserve’s monetary policy meeting next week.
“Brent crude pushing above $100 a barrel has had a psychological effect on the market, pushing a hypothetical inflation worry gauge to ‘serious’ status and dragging down financial assets,” said Dan Coatsworth, head of markets at AJ Bell.
“The oil price has now jumped by 28% since early August,” Coatsworth added. “This type of ascent could leave businesses and consumers feeling sick at the thought of sharp cost increases and potentially higher borrowing costs if central banks choose to fight inflation with interest rate hikes.”
Attention will also turn to U.S. consumer and producer inflation figures due later this week. The data could shape expectations for the Fed’s next interest rate decision.
U.S. indices extend losses after Labor Day break
The expected weaker open follows declines across Wall Street on Tuesday, when markets returned from the Labor Day weekend.
The Dow Jones Industrial Average recorded the largest decline among the major indices, dropping 628.18 points, or 1.2%, to 52,786.07.
The S&P 500 fell 45.08 points, or 0.6%, to 7,673.52, while the Nasdaq Composite finished 85.58 points, or 0.3%, lower at 26,421.41.
Tuesday’s declines also coincided with higher oil prices after U.S. forces struck three Iranian crude carriers over the weekend following Iranian missile launches towards two U.S. Navy vessels.
Iran has threatened further retaliation if the U.S. attacks additional Iranian assets, while Saudi-led coalition forces have said they will respond to attacks by Houthi forces.
Separately, Tehran said an agreement with Oman over the management of shipping through the Strait of Hormuz could be announced shortly.
Pharmaceuticals and housing stocks decline
Amgen (NASDAQ:AMGN) was among the largest individual decliners on Tuesday, falling more than 10% after Novartis (NYSE:NVS) released late-stage trial results for a competing cholesterol treatment.
Weakness spread across the pharmaceutical sector, sending the NYSE Arca Pharmaceutical Index down 3.2%.
Housing shares also came under pressure as Treasury yields increased. The Philadelphia Housing Sector Index declined 2.8%.
Healthcare, biotechnology and airline stocks recorded further losses, while oil, semiconductor and networking shares were among the areas of the market that moved higher.
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