Oil prices fan inflation worries
US stocks have fallen as oil prices and US Treasury bond yields increased, with investors weighing uncertainty over the prospects for an Iran war peace deal and the effect on the Federal Reserve's interest rate path.
Crude oil prices had jumped after US President Donald Trump rejected a peace deal from Iran. But they pared gains on expectations that Qatari mediators would hold talks with the two countries to find a possible deal.
After retreating from highs at the start of the month, oil prices have accelerated higher in recent days as hopes that a peace deal may be on the horizon have diminished.
The rising prices of crude oil and diesel fuel have fanned inflation worries and pushed US Treasury bond yields higher, along with comments from Fed officials. Those officials indicated that more rate increases might be needed if price pressures fail to moderate after the central bank raised interest rates by a quarter of a percentage point earlier this month.
Peace talks and the Fed’s next move
Iran announced a peace proposal at last week's United Nations General Assembly in New York, saying it had been relayed to the United States through Qatari mediators.
While Trump said on Saturday he had rejected the offer, he told Axios on Sunday that he expected US negotiators to continue talks this week.
Federal Reserve governor Lisa Cook said on Monday she expects continued inflationary pressure in coming months stemming from AI-related demand and higher oil prices. However, she stopped short of saying more interest rate hikes will be needed.
Expectations for a rate hike from the Fed at its October meeting have climbed in recent days, in part due to economic data indicating the economy was growing at a solid pace.
Markets are currently pricing in a 70.3% chance for an increase of at least a quarter of a percentage point at the central bank's meeting next month, up from 57.6% a week ago and 17.7% a month earlier, according to CME FedWatch.
Several key economic releases are due this week, which could help shape the path of Fed policy. These include a reading on inflation and the labour market, culminating in Friday's government payrolls report.
Boeing drags, Nvidia bucks the trend
On the major indexes, the Dow Jones Industrial Average fell 347.11 points, or 0.67%, to 51,481.51, the S&P 500 lost 59.72 points, or 0.77%, to 7,683.69 and the Nasdaq Composite lost 248.34 points, or 0.92%, to 26,820.38.
The decline for the S&P was its largest daily percentage drop since August 20.
Boeing shares tumbled 6.9% as one of the biggest drags on the Dow after the US Federal Aviation Administration said it would delay certification of Boeing's long-delayed 737 MAX 10 until a newly disclosed software issue is resolved.
Bucking the broader trend was a 1.6% gain in Nvidia shares after the chip giant announced a $US150 billion ($214 billion) share repurchase authorisation, the biggest-ever company share buyback.
