[New York Stock Market] Closes Lower Amid Soaring International Oil Prices... Dow Down 0.56%

The three major indices of the U.S. New York stock market all closed lower on the 5th (local time), the day after the Labor Day holiday, due to a sharp rise in international oil prices and weak economic indicators from China. Treasury yields are also showing an upward trend again.

On this day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average fell 195.74 points (0.56%) from the previous session to close at 34,641.97. The large-cap focused S&P 500 index dropped 18.94 points (0.42%) to 4,496.83, and the tech-heavy Nasdaq index closed down 10.86 points (0.08%) at 14,020.95.

Among the S&P 500 sectors, eight sectors excluding energy, technology, and communication stocks all declined simultaneously. Bank of America (BoA) lowered target prices for airlines citing rising jet fuel prices, causing American Airlines, Delta Air Lines, and others to fall more than 2%. Carnival, a leading cruise stock, also showed a decline of over 2%. On the other hand, energy-related stocks such as Halliburton showed strength. Airbnb and Blackstone jumped more than 7% and 3%, respectively, on news of their inclusion in the S&P 500 index. Tesla rose more than 4% on news of increased sales in China.

[Image source=Reuters Yonhap News]

Investors closely watched the September trading that began in earnest on this day following the Labor Day holiday on the 4th. The sharp rise in international oil prices in the commodity market exerted downward pressure on the New York stock market. Saudi Arabia, the largest oil producer, announced it would continue voluntary production cuts until the end of the year, sustaining the upward trend in oil prices. On this day at the New York Mercantile Exchange, the October delivery West Texas Intermediate (WTI) crude oil price closed at $86.69 per barrel, up $1.14 (1.3%) from the previous day. This marks the eighth consecutive trading day of gains and the highest closing price since November 15, 2022. The benchmark November Brent crude oil price also briefly surpassed $90 during the session.

This rise in oil prices not only increases inflationary pressures across the economy but could also dampen expectations for the Federal Reserve's (Fed) end to tightening based on recent soft-landing forecasts. Casey Runner, Chief Investment Officer at Truist Advisory Services, told CNBC, "When oil prices rise, inflation reappears, which can make the Fed's job more difficult."

Additionally, China's private sector economic indicator, the Caixin Services Purchasing Managers' Index (PMI), showed its weakest level in eight months, heightening concerns about global growth. The U.S. economic data released on the same day was also weak. The U.S. August Employment Trend Index (ETI) fell to 113.02 from the previous month. July factory orders also declined by 2.1% compared to the previous month.

In the New York bond market, Treasury yields rose. The benchmark 10-year yield hovered around 4.26%, while the 2-year Treasury yield, sensitive to monetary policy, was around 4.95%. The Dollar Index, which measures the dollar's value against six major currencies, rose more than 0.5% from the previous session to 104.8.

However, there is also optimism that these negative news items could actually be a positive for the New York stock market. Adam Turnquist, Chief Technical Strategist at LPL Financial, told CNBC that although September has traditionally been a weak month for the New York stock market, "history may not repeat itself, but this year's strong momentum suggests September may not be as bad as expected."

Investment bank Goldman Sachs lowered the probability of a U.S. recession within 12 months from 20% to 15% and predicted that the Fed may hold rates steady at this month's Federal Open Market Committee (FOMC) meeting. Jan Hatzius, Goldman Sachs' Chief Economist, said, "Due to continued job growth and real wage increases, real disposable income is expected to rise again in 2024," adding, "We strongly disagree with the view that the long lag of tight monetary policy will push the economy into a recession." He also forecasted that the Fed would hold rates steady at the September FOMC and that a rate hike in November would be unlikely.

According to the CME FedWatch tool, federal funds futures markets on this afternoon reflected more than a 93% probability that the Fed will hold rates steady in September. Although the Fed's June dot plot indicated the possibility of one more rate hike this year, investors are increasingly betting on no further hikes in 2023. The remaining FOMC meetings this year are in September, November, and December.

This week will also feature remarks from Fed officials. Fed Governor Christopher Waller, in an interview with CNBC Squawk Box, positively assessed last week's employment and inflation data, saying, "It allows us to proceed cautiously with rate hike decisions." Meanwhile, Cleveland Fed President Loretta Mester expressed a hawkish view in an interview with German media on the same day, stating, "We may need to raise rates further." Mester added, "Based on what I've seen so far, I can reasonably expect that rates may need to go higher," but also noted, "There is still plenty of time until the September decision, and we will have a lot of data and information before then."

On the 6th, Boston Fed President Susan Collins, who has hinted at the need for further rate hikes, will speak. Remarks from Fed Governor Michelle Bowman and Dallas Fed President Lorie Logan are also scheduled. Notable doves such as Chicago Fed President Austan Goolsbee, Philadelphia Fed President Patrick Harker, and Atlanta Fed President Raphael Bostic will speak on the 7th. Additionally, key indicators including the Fed's Beige Book, S&P Global Services PMI, Institute for Supply Management (ISM) Non-Manufacturing PMI, and trade balance data will be released this week.