U.S. stocks hovered near record highs on Tuesday, while Brent crude oil prices swung above $90 before retreating below $87. The market turbulence follows ongoing Middle East supply disruptions and precedes a critical government inflation reading.
U.S. stocks remained near their all-time highs on Tuesday, even as the oil market experienced sharp swings driven by uncertainty surrounding the conflict with Iran and the resulting closure of the Strait of Hormuz, according to AP News reporting.
The S&P 500 added 0.1% to stay close to the record high it reached on Friday. Meanwhile, the Dow Jones Industrial Average rose by 7 points—an increase of less than 0.1%—as of 11 a.m. Eastern time, and the Nasdaq composite traded nearly unchanged.
Crude Oil Volatility and the Strait of Hormuz Closure
Action in the energy market remained volatile. The price for a barrel of Brent crude briefly surged above $90 during morning trading before dropping back below $87, according to AP News. It last traded at $87.99, marking a 0.3% increase from Monday’s settlement price.
Such wild fluctuations have become routine since the United States and Israel launched attacks on Iran in late February. Those military actions shut down the Strait of Hormuz, trapping a significant portion of global crude supplies in the Middle East. Market records show that in the month prior alone, Brent crude veered wildly between $72 and $102 per barrel.
Gasoline Prices and Wednesday’s Government Inflation Data
Sustained high oil prices continue to worsen inflation pressures across the country. Data from AAA shows that the average cost for a gallon of regular gasoline sits at $4.01, according to AAA. While that figure is down from last week’s peak of nearly $4.09, it represents a sharp climb from less than $3.14 a year ago.
The persistent energy costs have fixed Wall Street’s attention on Wednesday, when the U.S. government is scheduled to release its latest monthly consumer inflation figures. Economists surveyed expect the report to show that inflation remains high but decelerated slightly to 3.4% in July, down from 3.5% in June.
Federal Reserve Interest Rate Speculation and Treasury Yields
The upcoming inflation data carries major implications for the Federal Reserve. Central bank officials remain notably split on whether to raise interest rates to suppress climbing consumer prices. Higher borrowing costs could slow price increases on store shelves, but they would also dampen the wider U.S. economy and weigh down stock prices and investments.
Data from CME Group indicates that traders are pricing in a coin flip’s chance that the Fed will enact an interest rate hike at its next policy meeting in September. If approved, it would mark the central bank’s first rate increase in more than three years, a move that could draw pushback from President Donald Trump, who has actively lobbied for lower borrowing costs.
The combination of elevated oil prices and inflation worries has pushed Treasury yields upward since the conflict with Iran began, driving long-term mortgage rates to their highest levels in a year. However, the 10-year Treasury yield pulled back on Tuesday, easing to 4.68% from 4.72% late Monday.