Dow Jones, S&P 500 and Nasdaq futures are currently pointing to a lower open on Monday, with stocks poised to extend the pullback seen during last Friday’s session.
The downward momentum on Wall Street comes amid concerns about a re-escalation of the military conflict in the Middle East following a period of relative calm.
Over the weekend, the U.S. and Iran traded strikes for the first time in over a month, contributing to a surge in crude oil prices.
U.S. crude oil futures are spiking by more than 3 percent after the U.S. attacked two Iranian rocket launchers on Larak Island and Iran retaliated by launching an attack on two U.S. bases in Jordan.
The sharp increase in crude oil prices may contribute to renewed worries about the outlook for inflation ahead of next month’s Federal Reserve meeting.
According to CME Group’s FedWatch Tool, the chances the central bank will raise interest rates by a quarter point have jumped to 63.9 percent following Fed Chairman Kevin Warsh’s hawkish remarks last Friday.
After seeing considerable volatility early in the session, stocks moved mostly lower over the course of the trading day on Friday. The major averages all moved to the downside on the day, partly offsetting the strength seen in the previous session.
The Nasdaq slid 138.93 points or 0.5 percent to 26,402.42 and the S&P 500 fell 19.23 points or 0.3 percent to 7,711.76. The narrower Dow posted a more modest loss, edging down 9.45 points or less than a tenth of a percent to 53,559.99.
Despite the pullback on the day, the major averages all moved higher for the week. The Nasdaq advanced by 0.9 percent, while the Dow and the S&P 500 both climbed by 0.5 percent.
The weakness that emerged on Wall Street came as Federal Reserve Chairman Kevin Warsh’s first speech at the Jackson Hole economic symposium was seen as having a hawkish tilt.
As widely expected, Warsh began his remarks by highlighting his aversion to providing “forward guidance,” noting his “long-time discomfort with early pronouncements of future policy decisions.”
Warsh argued that oversharing policy deliberations and overcommitting to future decisions can lead markets, businesses, and households astray.
However, Warsh’s comments about the current state of the economy may have provided some insight into his views about the outlook for interest rates.
The Fed chief noted people may well be concerned about possible future labor disruptions but said he believes labor markets are currently consistent with full employment.
Instead, Warsh said the numbers are more concerning with regard to the price-stability side of the Fed’s dual mandate, with the annual rate of growth by the central bank’s preferred measure of inflation standing at 3.7 percent
“None of these measures are perfect, but they all tell a similar story: Inflation is running above our 2 percent target,” Warsh said. “So the Fed’s predominant focus right now should be on prices.”
He added, “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do. That’s our job . . . our mandate . . . and our charge to keep.”
Following Warsh’s remarks, the chances the Fed will raise interest rates by a quarter point next month have jumped to 63.9 percent, according to CME Group’s FedWatch Tool.
Gold stocks moved sharply lower along with the price of the precious metal, resulting in a 3.9 percent nosedive by the NYSE Arca Gold Bugs Index.
Substantial weakness was also visible among semiconductor stocks, as reflected by the 3.5 percent plunge by the Philadelphia Semiconductor Index.
Shares of Nvidia (NASDAQ:NVDA) saw a significant pullback, with the AI giant tumbling by 4.6 percent after spiking by 8.7 percent on Thursday.
Networking, biotechnology and computer hardware stocks also saw considerable weakness, while retail stocks showed a strong move to the upside.
Shares of Gap (NYSE:GPS) soared by 12.9 percent after the clothing and accessories retailer reported better than expected second quarter earnings and announced the appointment of Michael Francis as President and Chief Executive Officer of Old Navy.