US equity futures indicated a weaker start to Thursday’s trading session as crude oil prices surged following reports that Washington was considering renewed military action against Iran, adding to concerns about inflation and further increases in interest rates.
American crude futures advanced almost 5%, while Brent crude climbed back above $100 a barrel, reversing the decline recorded during Wednesday’s session.
The renewed increase followed an NBC News report indicating that President Donald Trump and senior national security officials had discussed the possibility of launching another major US military campaign in Iran within the coming weeks.
Citing two people familiar with the discussions, including a US official, the report said military strikes before next month’s midterm elections were among the options under consideration.
Axios separately reported that the Pentagon had directed US Central Command to prepare for a potential resumption of large-scale combat operations in Iran.
Concerns about continued attacks on oil tankers in the Middle East and possible hurricane-related disruptions to Gulf of Mexico production also contributed to the increase in crude prices.
Energy Inflation Risks Push Treasury Yields Higher
The sharp rise in oil prices added to existing concerns about inflation and the possibility that the Federal Reserve could tighten monetary policy further.
US Treasury yields resumed their upward movement after finishing Wednesday little changed despite an earlier increase.
The benchmark 10-year Treasury yield had recently returned to its highest levels since 2002, reflecting investor concerns about persistent inflation and the outlook for borrowing costs.
Higher oil prices can increase transportation and production expenses, potentially affecting consumer prices and corporate profit margins.
Dan Coatsworth, head of markets at AJ Bell, said continued increases in crude prices could lead to greater financial market instability.
“The higher the oil price goes, the more volatility to expect on financial markets,” Coatsworth said. “Bond investors have made it clear they are concerned by the prospect of rising inflation feeding into higher interest rates and potentially economic setbacks.”
He noted that equity investors had so far remained more optimistic than bond investors, partly because of favourable corporate developments.
“Equity investors have been relatively relaxed versus bond investors thanks to positive corporate news flow keeping spirits high,” he added. “But that situation might not be sustainable if higher costs start to crimp corporate profits.”
The comments highlighted the possibility that rising energy and financing expenses could eventually offset the positive impact of company earnings and other corporate announcements.
Major US Indices End Wednesday Below Previous Closing Levels
Wall Street finished Wednesday’s session lower, although the main indices recovered much of their earlier losses.
The Nasdaq Composite declined 61.20 points, or 0.2%, to 27,538.69, after falling as much as 0.9% during the morning.
The S&P 500 slipped 17.16 points, also representing a 0.2% decline, to close at 7,801.77.
The Dow Jones Industrial Average recorded a larger percentage loss, falling 341.41 points, or 0.7%, to 51,179.87.
The declines followed four consecutive positive sessions during which the Nasdaq and S&P 500 reached fresh record highs.
Investors appeared to take some profits following the recent rally, while rising bond yields added to selling pressure.
However, market conditions improved during the afternoon as Treasury yields retreated from their session highs and oil prices reversed an earlier advance.
Strong Demand for US Government Debt Eases Bond Market Pressure
A successful Treasury auction contributed to the recovery in US equities during Wednesday’s session.
The Treasury Department sold $39 billion of 10-year notes, attracting demand substantially above historical averages.
The result helped stabilise bond prices and pushed yields lower from their earlier peaks.
Crude oil prices also weakened during the session, providing temporary relief from concerns about rising energy costs.
US crude futures ended Wednesday 1.3% lower, having traded as much as 1.7% higher earlier in the day.
The reversal contributed to the improvement in equity market sentiment, although Thursday’s renewed oil rally suggested that energy-related risks remained unresolved.
Fed Officials Continue to Expect Further Monetary Tightening
Minutes from the Federal Reserve’s September policy meeting confirmed that most policymakers expected another interest rate increase before the end of 2026.
The minutes stated: “Most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end.”
The document did not establish a timetable for the next rate adjustment, leaving open the possibility of action at a future meeting.
Officials also emphasised that monetary policy decisions would remain dependent on economic developments.
According to the minutes, policymakers stressed “that they approached each meeting with an open mind and decisions at future meetings would depend on incoming information and its implications for the outlook and the balance of risks.”
Investors largely absorbed the announcement without a major immediate reaction, although the prospect of higher interest rates continued to influence market expectations.
The latest rise in oil prices could further complicate the outlook by increasing inflationary pressures at a time when borrowing costs are already elevated.
Gold Miners and Brokerages Suffer Heavy Losses
Several sectors remained under significant pressure on Wednesday despite the broader market’s partial recovery.
Gold mining companies recorded particularly sharp declines as bullion prices fell.
The NYSE Arca Gold Bugs Index dropped 3.5%, reaching its lowest closing level in approximately two months.
Financial brokerage shares also weakened, with the NYSE Arca Broker/Dealer Index declining 2.6%.
Housing-related companies, oil service providers and airlines experienced notable losses.
Pharmaceutical stocks were among the exceptions, advancing strongly despite the generally negative market environment.
With US stock futures indicating another decline on Thursday, investors were focused on whether the renewed surge in crude oil prices and rising Treasury yields would extend the pullback in equities.
Developments involving Iran, energy supply risks and Federal Reserve policy expectations remained central to the near-term market outlook.
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