Wall Street Highlights: S&P 500 Slips As Oil Spike, Rising Fed Rate Bets Pressure Stocks

The S&P 500 Index closed 0.3% lower, though it posted its best August since 2021, rising 2.6% this month. The Nasdaq 100 Index rose 0.1%, finishing 4.2% higher in August, and snapping two straight months of losses. Nine of the 11 S&P sectors fell, led by a drop in communication services and utilities.

Energy shares were the biggest gainers in the S&P 500, advancing 2.1% as US oil prices jumped 3% to briefly top $86 after the US and Iran exchanged strikes for the first time in about a month. Oil majors like Chevron Corp. and ConocoPhillips respectively rose 2.1% and 1.6% as President Donald Trump threatened Iran with more attacks. Travel stocks like Royal Caribbean Cruises Ltd., Carnival Corp. and Norwegian Cruise fell, as fuel represents a major operating expense.

The moves mark the latest bout of volatility for oil prices, which have swung sharply in August as hopes for a resolution with Iran rise and fall. The US 10-year yield topped 4.75% on Monday for the first time since January 2025 as rising oil prices bolstered expectations that the Fed will lift borrowing costs.

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"Today there are no notable economic reports or Fed speak so focus will remain on geopolitics," wrote Tom Essaye, founder of 'The Sevens Report' newsletter. "Markets still strongly assume there won't be any material military escalation between Iran and the US, but if the headlines turn negative on that front, it'll introduce a new headwind on the market." 

As the calendar flips to September - historically the weakest month for US stock returns - Wall Street is grappling with a range of risks, from the durability of the artificial intelligence trade, to interest rates possibly rising as inflation persists.

Traders are looking to Friday's jobs report for clues on the trajectory of rates, after Federal Reserve Chair Kevin Warsh's recent speech at a symposium in Jackson Hole, Wyoming, which was viewed as hawkish by investors. Swaps imply an almost 70% chance that the Fed hikes a quarter-point next month to rein in price pressures. 

Among notable single-stock moves, PG&E Corp. shares tumbled 20%, the biggest drop since March 2020, while Edison International sank 23%, its worst day since April 2001, as California legislators introduced a bill that would update the state's wildfire response without shifting liability away from publicly traded utilities. PG&E and Edison were the two worst performers in the S&P 500 on Monday.

While the economic calendar was sparse Monday, this week will bring monthly manufacturing and services sector data, as well as earnings from Nvidia Corp. rival Broadcom Inc. Other AI companies reporting this week include Dell Technologies Inc., Hewlett Packard Enterprise and Ciena Corp.

Tesla Inc. was among the best performers in the S&P 500 on Monday, rising 5.5% to lead gains in the so-called Magnificent Seven group, ahead of its Cybercab launch event, scheduled for Thursday in Austin, Texas. Meanwhile, Amazon.com Inc. and Alphabet Inc. were among the biggest decliners in the group, both falling more than 2% each. Nvidia rose 1.5% after sliding nearly 5% Friday.

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Technology has powered stocks higher this month, with stocks tied to the AI frenzy outperforming. The S&P 500 tech sector has jumped more than 6% this month, with Microsoft Corp. climbing 9.2%, while Nvidia and Micron Technology Inc. have advanced about 10% and 16%, respectively.