US equities closed lower on Monday as a mix of rising oil prices, climbing Treasury yields, and geopolitical uncertainty weighed on investor sentiment. The Dow Jones Industrial Average fell 0.5%, the S&P 500 dropped 0.5%, and the Nasdaq Composite declined 0.3%, ending the S&P 500's three-week winning streak.
The selloff intensified as US-Iran tensions flared after a memorandum of understanding between the two countries expired. Brent crude futures climbed above $90 per barrel on Monday and extended above $91 on Tuesday. President Trump said he did not expect the conflict to end soon and threatened military action against Oman if it interfered with the reopening of the Strait of Hormuz. Iranian media reports that Iran had seized a UAE-owned oil tanker added further pressure.
Bond markets also reflected inflation worries. The 30-year Treasury yield rose to 5.31%, its highest level since June 2007, while the 10-year Treasury yield also ticked higher. Higher energy costs could make it more difficult for the Federal Reserve to cut interest rates. The Fed held its benchmark rate at 3.50% to 3.75% at its July meeting, with three policymakers voting for a hike.
Energy was the only S&P 500 sector to gain, rising 0.9%, while communications services and consumer staples lagged. US stock futures continued lower in Asian trading on Tuesday, with Nasdaq 100 futures down 0.8%, S&P 500 futures down 0.4%, and Dow futures down 0.1%. Traders are watching retail earnings from Walmart, Target, and Home Depot, as well as the FOMC minutes due Wednesday.
For digital assets, the combination of higher yields, a stronger dollar, and escalating geopolitical risk is likely to keep risk appetite limited, creating a cautious environment for crypto prices in the near term.
