Oil spike revives rate hike fears, stocks slip

US stocks closed lower on Monday. The S&P 500 finished at 7,683.81, down 27.95 points or 0.4%, the Dow Jones Industrial Average ended at 53,253.28, down 306.71 points or 0.6%, and the Nasdaq Composite closed at 26,321.34, down 81.08 points or 0.3%. Oil went the other way, with Brent crude, the global benchmark price for a barrel of oil, rising 2.7% to $90.49.

The chain started over the weekend, when US forces struck Iranian rocket launchers near the Strait of Hormuz, the narrow shipping lane that a large share of the world's seaborne oil passes through. Any threat to that passage makes traders worry that supply will be interrupted, so they bid up the price of oil today rather than risk paying more later. Higher oil prices then feed into almost everything else, because fuel is an input into shipping, manufacturing, and food, which is why a jump in crude quickly turns into a question about inflation, the general rate at which prices rise. That question lands on the Federal Reserve, the US central bank that raises or lowers interest rates to keep inflation near its 2% target, and traders responded by pricing in a 65.9% chance that the Fed raises rates at its September meeting. Higher expected interest rates make borrowing costlier for companies and make the future profits investors are buying worth less in today's money, so stock prices drifted down. The exception was energy companies, which earn more when oil is expensive, and names like Halliburton and Valero Energy rose while the rest of the market fell.