US STOCKS-Wall St slips as higher oil prices, hawkish Fed bets weigh

The main U.S. stock indexes dropped on Monday ‌after ​military strikes between the United States and Iran drove up oil prices, fanning inflation worries after Fed Chair Kevin Warsh's hawkish remarks in his first Jackson Hole address the previous week. The losses could set the tone for September, typically a weak month for ‌equities, and are likely to up the ante at the U.S. Federal Reserve's meeting next month.

Traders see a more than 60% chance of a rate hike at the Fed's September meeting, according to CME's FedWatch, a sharp increase from 41.4% a week ago, after Warsh said policymakers may need to increase borrowing costs if inflation does not ease to the central bank's ‌2% target. "He (Warsh) took any chance of a (rate) cut off the table," said Thomas Kikis, head of markets, U.S. and Americas, at Standard Chartered.

Warsh's comments, delivered on Friday at ‌the Fed's Jackson Hole symposium, came after mixed data in recent weeks. A consumer inflation report this month showed price pressures were mild in July, but the Personal Consumption Expenditures reading, the Fed's preferred gauge, was hotter than expected.

The ambiguity could raise the stakes for the monthly U.S. employment report, due on September 4. Recent reports did not indicate that "underlying trends have meaningfully improved," Warsh said on Friday. "Absent a material downside surprise, the onus is ⁠now on Warsh ​to deliver a September hike. Otherwise, he ⁠risks undermining some of the credibility he gained on Friday," analysts at BofA Global Research said in a note.

At 09:54 a.m. the Dow Jones Industrial Average fell 350.75 points, or 0.65%, to 53,209.24, the S&P 500 ⁠shed 30.49 points, or 0.40%, to 7,681.27, and the Nasdaq Composite lost 77.11 points, or 0.29%, to 26,325.31. The benchmark S&P 500 and the tech-heavy Nasdaq were on track for monthly gains after two ​straight months of decline, while the Dow was headed for a fifth consecutive monthly rise.

Military clashes between the U.S. and Iran resumed in the Middle East, where ⁠disruption in the Strait of Hormuz has impeded oil shipments. Energy stocks were up following nearly a 1.71% jump in Brent crude prices, with Halliburton and Valero Energy climbing 4.26% and 1.90%, respectively.

All S&P 500 sectors except energy ⁠were ​under pressure. Utilities led sector declines, falling 1.7% after an amendment to a Senate bill in California did little to alter the exposure of grid operators in the state to wildfire liabilities.

PG&E plunged 18% and looked set for its worst day in more than six years, if losses hold. Nvidia rose 0.28%, outperforming megacap stocks. Other chipmakers were also up, with ⁠Intel and Texas Instruments gaining 1.21% and 0.9%, respectively.

"I continue to favor areas of the market linked to structural growth themes such as artificial intelligence and digital infrastructure," said ⁠David Chao, global market strategist, Asia Pacific, at ⁠Invesco. In other movers, GameStop's shares rose 4.5% after the company said it would pay about 27% of a previously announced $1.4 billion debt exchange through cash on hand instead of issuing new stock, preventing further share dilution.

Declining issues outnumbered advancers by a 1.84-to-1 ratio on ‌the NYSE. On the Nasdaq, ‌declining issues outnumbered advancers by a 2.03-to-1 ratio.