Stocks Fall as Rising Geopolitical Risks Boost Crude Oil and Bond Yields

The S&P 500 Index ($SPX) (SPY) is down by -0.50% today, the Dow Jones Industrial Average ($DOWI) (DIA) is down by -0.67%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.29%.  E-mini S&P futures (ESU26) are down -0.48%, and September E-mini Nasdaq futures (NQU26) are down -0.30%.

Stock indices are under pressure today, with the Dow Jones Industrial Average falling to a 1-week low on a flare-up in geopolitical risks.  Renewed Middle East tensions are boosting crude oil prices, raising inflation expectations, bond yields, and complicating the US inflation outlook.  WTI crude oil is up more than +2% today after the US and Iran exchanged strikes for the first time in about a month.  The 10-year T-note yield jumped to a 19-month high today at 4.76%.

Stocks also have some negative carryover from last Friday when Fed Chair Warsh vowed to bring inflation back to target and said financial conditions aren’t restrictive, bolstering the chance of a Fed rate hike next month.  The chance of a Fed interest rate hike at next month’s FOMC meeting is 65% today, up from 36% before he spoke last Friday.   

Chinese economic news was mixed after China's Aug manufacturing PMI rose +0.6 to 49.8, stronger than expectations of 49.5.  However, the Aug non-manufacturing PMI was unchanged at 49.0, weaker than expectations of an increase to 49.4.

Oct WTI crude oil prices (CLV26) jumped more than +2% today to a 1-week high as Middle East tensions flared.  The US Central Command said it targeted Iranian rocket launchers preparing to send mines into the Strait of Hormuz, and Iran retaliated by firing missiles and drones at US air bases in Jordan, while the United Arab Emirates said it intercepted drones from Iran.  Crude prices added to their gains today when President Trump said the US will respond to Iran's latest attacks on US forces.

Q2 earnings results are a bullish factor for stocks.  The S&P 500 is tracking for earnings growth of almost 32% in Q2, well above projections of +23%, and nearly four times the average earnings growth rate outside of the Covid period since Q4 of 2013, according to Bloomberg Intelligence.  AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2. So far, earnings results have been positive, with 86% of the 486 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data. 

The markets are discounting a 65% chance of a +25 bp rate hike at the next FOMC meeting on September 15-16.

Overseas stock markets are mixed today.  The Euro Stoxx 50 is down -0.65%.  China's Shanghai Composite rose to a 1.5-week high and closed up +0.85%.  Japan's Nikkei-225 Stock Average closed down -0.14%.

Interest Rates

September 10-year T-notes (ZNU6) are down -5 ticks today.  The 10-year T-note yield is up +3.6 bp to 4.754%.  T-notes tumbled to a 19-month nearest-futures low today, and the 10-year T-note yield rose to a 19-month high of 4.764%.  T-notes are sliding today as the +3% surge in WTI crude oil prices to a 1-week high boosts inflation expectations.  T-notes are also being pressured by negative carryover from last Friday when hawkish comments from Fed Chair Warsh pushed the chances of a Fed rate hike at next month’s FOMC meeting up to 65% today from 36% before he spoke. 

European government bond yields are moving higher today.  The 10-year German bund yield jumped to a 15-year high of 3.324% and is up +3.7 bp to 3.316%.  The 10-year UK gilt is not trading, with markets in the UK closed today for a holiday.

German Aug CPI (EU harmonized) rose +0.2% m/m and +2.9% y/y, weaker than expectations of +0.3% m/m and +3.1% y/y.

Markets are discounting a 98% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.

US Stock Movers

Airlines and cruise line operators are falling today, with WTI crude oil up more than +2% at a 1-week high, which boosts fuel costs and curbs the companies’ profitability.  American Airlines Group (AAL), United Airlines Holdings (UAL), Delta Air Lines (DAL), Alaska Air Group (ALK), Southwest Airlines (LUV), Carnival (CCL), Royal Caribbean Cruises (RCL), and Norwegian Cruise Line Holdings (NCLH) are all down more than -2%.

Housing stocks and building suppliers are weaker today as the 10-year T-note yield rises to a 19-month high, boosting mortgage rates and undercutting housing demand.  DR Horton (DHI), Lennar (LEN), Pulte Group (PHM), KB Home (KBH), Toll Brothers (TOL), Builders Firstsource (BLDR), and Home Depot (HD) are down more than -1%. 

Energy producers and service providers are moving higher today, with WTI crude oil up +2% at a 1-week high.  SLB Ltd (SLB) is up more than +3%, and ExxonMobil Holdings (XOM), Devon Energy (DVN), and Halliburton (HAL) are up more than +2%.  Also, Chevron (CVX) is up more than +2% to lead gainers in the Dow Jones Industrials, and Diamondback Energy (FANG), Baker Hughes (BKR), ConocoPhillips (COP), and Occidental Petroleum (OXY) are up more than +1%.

Edison International (EIX) is down more than -23% to lead losers in the S&P 500 and PG&E Corp (PCG) is down more than -19% and after California lawmakers introduced a bill that would update the state’s wildfire response without shifting liability away from publicly traded utilities. 

Howmet Aerospace (HWM) is down more than 7%, and GE Vernova (GEV) is down more than 2% after Elon Musk said SpaceX and Tesla are each building 100 GW/year of solar production capacity, which will reduce the companies’ reliance on natural-gas-powered turbines.

Aon Plc (AON) is down more than -7% on reports that it will acquire KKR & Co’s USI Insurance Services for $17 billion.   

Pinterest (PINS) is down more than -5% after announcing CFO Donnelly will step down effective October 30 after three years with the company.

CrowdStrike Holdings (CRWD) is up more than +4% to lead gainers in the S&P 500 and Nasdaq 100 after announcing a strategic partnership with Clear Secure that integrates the CLEAR1 identity platform with the CrowdStrike Falcon platform. 

CNH Industrial (CNH) is up more than +3% after Baird upgraded the stock to outperform from neutral with a price target of $15. 

Science Applications International (SAIC) is up more than +2% after reporting Q2 revenue of $1.88 billion, better than the consensus of $1.76 billion, and raising its 2027 revenue forecast to $7.2 billion to $7.3 billion from a previous forecast of $7.0 billion to $7.2 billion, stronger than the consensus of $7.19 billion. 

Kaiser Aluminum (KALU) is up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $184. 

Earnings Reports (8/31/2026)

Critical Metals Corp (CRML), Science Applications International Corp (SAIC).