(Sept 1): A flare-up in geopolitical risks sent stocks and bonds lower as oil climbed, raising concerns about inflationary pressures that could make the Federal Reserve raise interest rates.

Escalating tensions in the Middle East drove US crude near US$86, with the rise in energy costs lifting Treasury 10-year yields to the highest since January 2025. The S&P 500 trimmed its August advance.

The US and Iran exchanged strikes for the first time in about a month as American forces hit an island in the Strait of Hormuz and the Islamic Republic responded by launching attacks on the United Arab Emirates and Jordan.

Fresh hostilities dashed hopes for a Hormuz traffic normalisation, with elevated oil prices reinforcing bets on higher rates after Fed chair Kevin Warsh reiterated a commitment to bring down inflation. While much hinges on employment and inflation figures, money markets see a hike as more likely than not in September.

“With traders tracking geopolitical volatility as well as potential seasonal volatility, it will be interesting to see which market impulse from last week might carry over to this week,” said Chris Larkin at E*Trade from Morgan Stanley. “Unexpectedly strong labour-market data might be taken as bad news by the market, since it could reinforce expectations for a rate hike.”

The August US payrolls data is expected to be consistent with general steadiness in the labour market that’s helping the Fed focus more intently on its battle with inflation.

Friday’s jobs report “will be critical,” with data on consumer prices, due on Sept 11, being the more important of the two prints, given Warsh’s view that US is at full employment, said JPMorgan Chase & Co’s Andrew Tyler. He’s shifted to a “tactically cautious” view on US stocks for the next few weeks, but expects a strong backdrop will persist amid economic data and earnings.

On Tuesday, the calendar flips to a historically tough month for equities. While the S&P 500 bucked the seasonal trend in the past two years, the index has lost 0.8% on average in Septembers over the past three decades, data compiled by Bloomberg show. That makes it the worst month of the year and in stark contrast to an average 0.9% gain for the other 11 months.

“Ugh, here comes September,” said Anthony Saglimbene at Ameriprise. “September has historically delivered the calendar’s largest single-month drops when other market dynamics are going south, but roughly flat-to-positive outcomes when market and economic conditions are more normal.”

That makes September seasonality weakness a risk to be aware of in the context of other market dynamics, but not necessarily a month investors want to consistently avoid stocks, he added.

Uploaded by Isabelle Francis