US stock indexes fell on Monday as investors weighed a jump in oil prices and higher Treasury yields against a steady stream of second-quarter earnings. The S&P 500 slipped 0.50%, the Dow Jones Industrial Average declined 0.67%, and the Nasdaq 100 fell 0.29%, with markets turning more cautious as geopolitical tensions resurfaced in the Middle East and pushed inflation expectations higher.
Crude prices climbed after reported US and Iranian strikes and additional regional developments, while the 10-year Treasury yield surged to a 19-month high of 4.76%. Rate expectations also shifted in the background following hawkish comments earlier last week, pressuring longer-dated assets and rate-sensitive equities.
Key takeaways
- Price move: The S&P 500 fell 0.50%, the Dow dropped 0.67%, and the Nasdaq 100 declined 0.29%.
- Catalyst: A more than 2% rally in WTI crude following renewed Middle East tensions lifted inflation expectations and pushed the 10-year Treasury yield to 4.76%.
- Fed watch: Markets increased the probability of a rate hike at the next FOMC meeting to 65% from 36% before recent remarks by Fed Chair Warsh.
- Implication: Higher yields and oil-linked inflation risk weighed on areas such as airlines, cruise operators, and housing-related stocks.
What drove the move
Geopolitical risk and energy prices were the dominant drivers of the session. WTI crude rose more than 2% to a one-week high as reports cited renewed activity involving the US and Iran, along with additional developments affecting regional security. President Trump also said the US would respond to Iran’s latest attacks on US forces.
Rising crude fed directly into bond-market pricing. Data in the market indicated the 10-year Treasury yield rose to a 19-month high of 4.76%, with T-notes moving lower. The move reflected both oil-driven inflation expectations and “negative carryover” from the prior week, when hawkish comments from Fed Chair Warsh increased the perceived likelihood of a near-term rate hike.
Equities also faced mixed macro inputs from China. China’s August manufacturing PMI rose by 0.6 to 49.8, beating expectations of 49.5, while the August non-manufacturing PMI held at 49.0, below expectations of 49.4. Overseas markets were mixed, with Europe lower and parts of Asia higher.
Market reaction across sectors
Higher oil and higher yields influenced stock selection, pushing certain sectors lower while lifting others. Airlines and cruise lines dropped more than 2% in aggregate, including American Airlines, United Airlines, Delta Air Lines, Alaska Air Group, Southwest Airlines, Carnival, Royal Caribbean, and Norwegian Cruise Line. Investors appeared to be pricing increased fuel-cost sensitivity in an environment where energy costs are moving higher.
Housing and construction-related stocks also weakened as the 10-year yield climbed. Companies including DR Horton, Lennar, Pulte Group, KB Home, Toll Brothers, Builders FirstSource, and Home Depot were down more than 1% based on the session’s reported moves, consistent with mortgage-rate pressure when Treasury yields rise.
By contrast, energy-linked equities gained as crude strength supported the group. SLB rose more than 3%, while ExxonMobil, Devon Energy, and Halliburton advanced more than 2%. Chevron led gains within the Dow, and additional producers and services—Diamondback Energy, Baker Hughes, ConocoPhillips, and Occidental Petroleum—were up more than 1%.
Earnings expectations and rate pricing
Despite the day’s risk-off tone, earnings remained a supportive factor for broader markets. The S&P 500 was tracking for second-quarter earnings growth of nearly 32%, according to Bloomberg Intelligence, above projections of 23%. The same report said AI spending is expected to be a major contributor, with AI infrastructure stocks projected to account for nearly 60% of the S&P 500’s earnings-per-share growth in the quarter.
Market breadth also reflected that earnings results have so far come in better than expected. Bloomberg data cited in the article indicated 86% of the 486 S&P 500 companies that had reported second-quarter results beat estimates.
Still, investors were pricing the near-term policy path more aggressively. The report stated the chance of a Fed rate hike at the next FOMC meeting on September 15–16 rose to 65% from 36% before Warsh’s comments. Separately, the market was discounting a 98% likelihood of a 25 basis-point ECB rate hike at the next policy meeting on September 10.
Notable single-stock movers
- Large declines: Edison International fell more than 23%, and PG&E Corp dropped more than 19% after California lawmakers introduced a bill related to wildfire response without shifting liability away from publicly traded utilities.
- Bottom-line impacts tied to energy and production: Howmet Aerospace declined more than 7%, and GE Vernova fell more than 2% following remarks by Elon Musk about SpaceX and Tesla building significant solar production capacity, potentially reducing reliance on natural-gas-powered turbines.
- Deal-related weakness: Aon fell more than 7% on reports it would acquire KKR & Co’s USI Insurance Services for $17 billion.
- Management change: Pinterest dropped more than 5% after announcing CFO Donnelly will step down effective October 30.
- Gainers: CrowdStrike rose more than 4% after announcing a strategic partnership with Clear Secure integrating CLEAR1 identity services with CrowdStrike’s Falcon platform.
- Upgrades and results: CNH Industrial gained over 3% after a Baird upgrade to outperform; Science Applications International rose more than 2% after reporting second-quarter revenue above consensus and raising its 2027 revenue outlook; Kaiser Aluminum rose more than 1% after a UBS upgrade to buy.
What to watch next: Investors are likely to focus on how Treasury yields react to further energy-price moves, particularly if oil volatility persists. With the next major set of catalysts approaching, trading will also hinge on additional second-quarter earnings announcements and the upcoming Fed meeting dates referenced by market pricing.
