Wall Street fell for a fourth straight session on Thursday as crude oil pushed above $100 a barrel for the first time since May and Treasury yields climbed to their highest levels in nearly three years, a combination that has abruptly flipped trader expectations for next week's Federal Reserve meeting from a possible rate cut to a likely hike.
The Dow Jones Industrial Average closed down 316.56 points, or 0.6%, at 52,064.10. The S&P 500 slid 0.58% to 7,591.70, and the Nasdaq Composite dropped 0.65% to 26,081.72. It was the fourth consecutive losing session for all three indexes, though each remains solidly higher for the year — the S&P 500 is still up roughly 11% in 2026 and the Nasdaq more than 12%. Brent crude, the international benchmark, traded above $107 a barrel, while U.S. West Texas Intermediate crossed $100 for the first time in four months, according to Yahoo Finance's market tracker.
A War Squeezing Supply From Both Sides
The oil shock traces to a widening military confrontation in the Persian Gulf. Iran's Revolutionary Guard fired ballistic missiles this month at a U.S. aircraft carrier and a guided-missile destroyer patrolling the region — both ships evaded the attacks and no American personnel were harmed — prompting U.S. Central Command to retaliate by disabling Iranian oil tankers off Kharg Island and near the port of Jask, according to a CENTCOM public release. The tit-for-tat has made the Strait of Hormuz, through which roughly a fifth of the world's oil passes, effectively contested territory.
The disruption is showing up in hard numbers. Saudi Arabia told OPEC's secretariat its crude production slumped to 6.238 million barrels a day in August — the lowest level the kingdom has reported since 1990 — as Hormuz shipping risk and a separate Houthi blockade of Red Sea routes squeezed exports from two directions at once. Retail gasoline has followed crude higher: the national average hit $4.22 a gallon this week, the highest ever recorded for the month of September. President Trump, asked about the run-up, said Wednesday that oil prices "may not come down until after the midterm elections," two months away.
From Rate-Cut Bets to Rate-Hike Bets
The inflation math has darkened alongside the oil market. The Labor Department's producer price index for August, released Thursday, rose 0.4% on the month and 5.4% from a year earlier at the headline level, with core producer prices up 0.2% for the month and 4.6% year-over-year. Neither figure captures the bulk of September's energy spike, meaning the pass-through to consumer inflation is likely still ahead. Traders have responded by pricing in a real chance the Fed raises rates rather than cuts them at its September 16-17 meeting: fedwatch data tracked by CME Group showed roughly 69% odds of a quarter-point hike, up from near-even odds just weeks ago, while the 2-year Treasury yield — the maturity most sensitive to Fed policy — jumped 10 basis points to 4.53%.
Longer-dated debt moved even more sharply. The 10-year Treasury yield touched 4.91% on Thursday, its highest level since 2023, and the 30-year climbed to 5.35%. Higher long-term yields ripple through mortgage rates, corporate borrowing costs and the multiples investors are willing to pay for stocks, which strategists cite as the more direct channel — beyond oil itself — for Thursday's equity losses. Fed Chair Kevin Warsh has signaled since late August that he sees "work to do" on inflation, a stance that now looks prescient to markets bracing for a hike many had not expected this year.
Friday's August consumer price index, due at 8:30 a.m. ET, is the last major data point before the Fed's decision and will shape whether the hike bet solidifies further or unwinds. A Fed move to raise rates while a shooting war disrupts a fifth of the world's oil supply would mark an unusual policy setting — tightening into a supply shock rather than a demand-driven boom — and traders say volatility is likely to stay elevated into next week's meeting regardless of Friday's inflation print.
