- The spike in oil prices last week renewed inflation worries.
- Data on Friday revealed a significant increase in US workers in August.
- AI optimism boosted stocks like Nvidia, Intel, and Micron.
Equities ended last week nearly flat as prices oscillated amid geopolitical tensions and US economic data. The conflict between the US and Iran escalated during the week, sending oil prices back above $90 a barrel. Meanwhile, non-farm payroll data on Friday revealed a robust labor market that gives the Fed room to hike interest rates.
The US and Iran resumed exchanging fire last week, causing panic and uncertainty in global markets. Risk appetite dropped, and investors held back from making big bets on equities. The conflict around the Strait of Hormuz escalated to involve other countries, such as Kuwait. Initially, market participants had hoped that the almost one-month pause would lead to peace. Moreover, the US opted to impose sanctions on Iran.
However, all this changed suddenly when the US attacked and killed Iranian soldiers on Larak Island. With no clear path to peace, the risk premium on oil returned.
The spike in oil prices last week renewed inflation worries, increasing expectations for a Fed rate hike. The Fed Chair said during the Jackson Hole symposium that if inflation remains hot, they would have much work to do to lower it. However, high borrowing costs are bad for businesses. Growth stocks suffer the most when interest rates increase. Some of them, like Tesla and Microsoft, pulled back.
S&P 500 (Source: Bloomberg)
Furthermore, data on Friday revealed a significant increase in US workers in August. Non-farm payrolls came in at 162,000 compared to the forecast of 55,000. Moreover, the previous reading was revised higher to show an increase rather than a loss of jobs. The data was yet another reason for the Fed to confidently hike interest rates in September. The likelihood of such a move was around 60% by the end of the week.
Some support for equities came from the tech sector, where AI optimism boosted stocks like Nvidia, Intel, and Micron. As a result, stocks recovered from their earlier losses to end the week flat.
The US CPI report due on Friday is now the main focus. Experts believe the monthly figure increased by 0.4%, up from 0.1%. Meanwhile, the annual figure could hold at 3.4%. The actual numbers will continue shaping the outlook for Fed policy.
