Stocks slide as Iran war drives oil higher, revives inflation fears

On Wednesday, Wall Street stocks declined as the price of crude oil surged above $100 a barrel amid ongoing escalation in the United States' war with Iran. The S&P 500 index fell 0.5 percent, while the Dow Jones Industrial Average dropped 413 points, or 0.8 percent. Nasdaq composite also experienced a decline of 0.7 percent. These losses were widespread, with retailers among the leading companies driving the market down.

Amazon shares dropped 2.2 percent, and Starbucks saw a 2 percent decline. All sectors within the S&P 500 experienced a loss, although oil companies were among the few that gained. Exxon Mobil and Chevron saw a rise of 1.7 percent and 1.4 percent respectively.

Oil prices played a significant role in the market's move. The US destroyed five Iranian tankers on Tuesday, leading to a series of attacks between the two nations. This conflict, which began in February, has effectively halted traffic in the Strait of Hormuz, through which a fifth of the world’s oil supply passes. The price of Brent crude, the international standard, rose 3.4 percent to $101.24 a barrel, marking the first time it surpassed $100 a barrel since July.

The increase in oil prices has contributed to high inflation already present due to the ongoing US trade war with much of the world, which is also intensifying, particularly between the U.S. and its ally and trade partner Canada.

Higher fuel prices directly affect household budgets, especially in the cost of driving, but they also indirectly raise prices for goods due to increased shipping costs. Diesel recently hit an all-time high and has continued to climb since. Inflation has been stubbornly high since the US started its war against Iran due to the ongoing US trade war.

Wall Street will receive more updates this week on inflation, starting with the wholesale price report on Thursday and the Consumer Price Index (CPI) for August on Friday. Both reports are expected to show inflation remaining above 3%, a concern for the Federal Reserve, which aims to keep inflation at a 2% target. The central bank has kept interest rates steady, but Wall Street anticipates a 62% chance of a rate hike at the upcoming meeting.

Higher interest rates make borrowing more expensive, aiming to cool the economy and control inflation. Bond yields have also risen, weighing down stocks on Wall Street. The U.S. Treasury announced plans to buy back up to $6 billion in long-term debt, an effort to counter rising yields, which make it more expensive for US companies to borrow and impact other investments like stocks.

The yield on the 10-year Treasury rose to 4.85 percent, and the 2-year Treasury yield climbed to 4.42 percent. Higher bond yields signal that investors demand a higher return from Treasurys. Meta Platforms' shares rose 6.5 percent as the company launched a personal AI agent, Muse, for users 18 and over seeking assistance with daily tasks. European markets fell, while Asian markets closed mixed.