US markets faced renewed selling pressure on Monday, as rising oil prices and higher Treasury yields sparked fresh concerns among investors. The Dow, S&P 500, and Nasdaq all ended the day lower, reflecting the impact of surging energy costs driven by geopolitical tensions in the Middle East and the effects of rising borrowing costs. Despite optimism from last week’s positive jobs report, caution resurfaced as market participants looked ahead to key economic data releases and the Federal Reserve’s upcoming policy discussions, which could further shape the market’s direction.

Key Takeaways:

  • Dow Drops Nearly 400 Points: The Dow Jones Industrial Average experienced a sharp drop of 398.51 points, or 0.94%, to close at 41,954.24. This downturn reflects growing investor concerns about rising oil prices and higher Treasury yields, which contributed to a cautious market environment. The decline erased the modest gains seen in the previous week, as market sentiment shifted towards caution amidst economic uncertainties.
  • S&P 500 and Nasdaq Also Slide: The S&P 500 declined 0.96%, ending the session at 5,695.94, while the Nasdaq Composite lost 1.18%, closing at 17,923.90. The tech-heavy Nasdaq faced pressure as concerns over rising interest rates and energy costs weighed on high-growth stocks. The decline in these indices underscores a broader market retreat, with investors adjusting their positions in anticipation of potential impacts from rising borrowing costs.
  • 10-Year Treasury Yield Tops 4%: The 10-year Treasury yield rose over 4 basis points, reaching 4.02%, marking the first time since August that it crossed the 4% threshold. This increase signals heightened concerns over inflation and the potential for prolonged higher interest rates. Rising yields can impact everything from mortgages to corporate borrowing, adding further pressure to equity markets, especially those sensitive to interest rate movements.
  • European Markets Edge Higher Despite Mixed Data: European stock markets posted modest gains on Monday, with the pan-European Stoxx 600 index rising 0.17%. The CAC 40 in France reversed earlier losses to close 0.5% higher at 7,576, driven by strength in household goods stocks, which rose 0.97%. The FTSE 100 index in the UK gained 22.99 points, or 0.28%, to reach 8,303.62. However, Germany’s DAX underperformed its European peers, declining by 0.14% to 19,094, as German factory orders for August fell by 5.8%, a steeper decline than the expected 2.0%, marking the largest contraction since January. This mixed performance reflects a combination of positive momentum from last week’s Wall Street rally and ongoing concerns about economic challenges in the Eurozone.
  • Asia-Pacific Markets Lead Gains: Markets across the Asia-Pacific region started the week on a positive note, led by a strong performance in Japan. The Nikkei 225 surged 1.8%, closing at 39,332.74, supported by gains in financial and consumer cyclical stocks. Key contributors included Mizuho Financial Group and Nikon, as investor sentiment turned optimistic ahead of central bank meetings in the region. In South Korea, the Kospi rose 1.58% to 2,610.38, reversing earlier losses, while the Kosdaq gained 1.56%, ending at 781.01. Hong Kong’s Hang Seng Index climbed 1.32%, briefly crossing the 23,000 level for the first time since February 2022, as investors remained hopeful about regional growth prospects despite the geopolitical backdrop. Meanwhile, Australian lithium stocks saw a strong rally, with Liontown Resources jumping 18.92%, and Mineral Resources rising 4.61%, driven by Rio Tinto’s interest in acquiring Arcadium Lithium.
  • Oil Prices Surge Over 3%: US crude oil prices saw a significant rise of more than 3%, with West Texas Intermediate (WTI) November contracts settling at $77.32 per barrel, up $2.94 or 3.95%. Similarly, Brent crude December contracts closed at $81.07 per barrel, gaining $3.02 or 3.87%. This surge in oil prices was driven by ongoing geopolitical tensions in the Middle East, particularly as markets awaited potential actions from Israel against Iran. Rising energy prices added to inflationary pressures, contributing to market uncertainty.

FX Today:

  • EUR/USD Slides Lower, Testing Key Moving Averages: EUR/USD was trading around 1.0968, down from its session high of 1.0983. The pair struggled to hold above its 50-period SMA at 1.1108, showing a loss of bullish momentum. Despite this, it remains above the 200-period SMA at 1.1109, providing a crucial support level. Immediate resistance is seen at 1.1108, with further barriers at 1.1150 and 1.1200. If the pair fails to maintain its position above the 200-period SMA, bears may target support at 1.0900, with additional downside towards 1.0850.
  • GBP/USD Pulls Back from Highs, Support Levels in Focus: GBP/USD traded around 1.3080 after reaching a high of 1.3099 earlier in the session. The pair has seen some profit-taking, but remains above its 200-period SMA, currently at 1.3200, which acts as a key support. Resistance is positioned at 1.32652 (100-period SMA), with further levels at 1.3300 and 1.3350. A break above these could re-establish an upward trend. If the pair slips below the 200-period SMA, it may head towards 1.3050, with additional support at the 1.3000 level.
  • USD/CHF Attempts Recovery, Resistance Looms Above: USD/CHF was trading around 0.8542, after reaching a high of 0.8545 earlier. The pair shows signs of recovery, holding above the 200-period SMA at 0.8479, which serves as a key support level. Resistance stands at 0.8491 (50-period SMA), followed by 0.8550 and 0.8600. A successful break above these could signal a shift towards a more sustained recovery. If the pair falls back below 0.8479, bears might target further declines towards 0.8400.
  • AUD/USD Struggles Below Resistance, Bulls Eye Key Supports: AUD/USD traded around 0.6751, slightly lower after reaching a session high of 0.6766. Selling pressure has kept the pair below the 50-period SMA at 0.6865, capping recent gains. However, it remains above the 200-period SMA at 0.6781, offering critical support. Immediate support lies at 0.6700, with further downside towards 0.6650 if the bearish momentum continues. On the upside, a break above 0.68654 could open the door for a move towards 0.6900 and 0.6950.
  • Gold Retreats as Dollar Strengthens: Gold prices eased back, trading around $2,643.71 after peaking at $2,648.11 earlier in the day. Profit-taking has contributed to the dip, but the metal remains above the 50-period SMA at $2,654.66, which acts as a key support. A break above the resistance at $2,654.66 could see gold target higher levels near $2,670 and $2,700. On the downside, if gold drops below the 50-period SMA, support is expected at $2,627.47 (100-period SMA) and further at the 200-period SMA near $2,568.21.

Market Movers:

  • Generac Holdings Surges as Hurricane Milton Intensifies: Shares of Generac Holdings jumped 8.5% on Monday as Hurricane Milton strengthened into a Category 5 storm, prompting increased demand for power generators. With Florida preparing for potential evacuations, investors are betting on a rise in sales for Generac’s products, positioning the stock as a key beneficiary amidst the storm’s impact.
  • Amazon Drops on Wells Fargo Downgrade: Amazon shares fell 3% after Wells Fargo downgraded the stock to “equal weight” from “overweight” and slashed its price target. The downgrade reflects concerns over slowing growth in Amazon’s core e-commerce business and rising competition from Walmart, which continues to gain market share.
  • Pfizer Gains Amid Activist Investor Interest: Pfizer shares climbed 2.2% following reports that activist investor Starboard Value has acquired a nearly $1 billion stake in the pharmaceutical giant. The news has fuelled speculation of a strategic push for a turnaround at Pfizer, driving investor optimism and lifting the stock.
  • Coty Gains on Jefferies Upgrade: Coty shares rallied 4.1% after Jefferies upgraded the stock to “buy” from “hold.” The upgrade was based on the company’s continued growth in the fragrance segment and an attractive valuation, leading to increased investor interest.
  • Arcadium Lithium Surges on Rio Tinto Approach: Shares of Arcadium Lithium PLC soared more than 35% after the company announced that it had been approached by Rio Tinto for a potential acquisition. The non-binding approach has boosted market optimism around Arcadium’s prospects, making it one of the top gainers in the lithium sector.
  • Hershey Declines on Analyst Downgrades: Hershey’s stock fell 2.3% following downgrades from UBS and Bernstein, both of which shifted their ratings to “neutral” and “market perform,” respectively. Analysts cited concerns about gross margin compression due to rising cocoa prices and the impact of GLP-1 drugs on US chocolate consumption as factors weighing on the stock.
  • KB Home Drops After Wells Fargo Downgrade: Shares of KB Home declined 2.2% after Wells Fargo downgraded the homebuilder to “underperform” from “equal weight.” The bank expressed concerns about the company’s ability to keep pace with competitors in the next phase of the housing market cycle, leading to a sell-off in the stock.
  • Apple Slips on iPhone Demand Concerns: Apple shares dipped 2.3% after Jefferies downgraded the stock to “hold” from “buy,” citing lower-than-expected initial demand for the iPhone 16 and iPhone 17. The firm also expressed scepticism about Apple’s near-term artificial intelligence capabilities, suggesting they may not reach commercial readiness for another two to three years, leading to tempered investor expectations.
  • Ciena Loses After Downgrade to Neutral: Ciena shares fell 4.7% after a downgrade by JPMorgan to “neutral” from “overweight.” The downgrade reflected limited upside potential for earnings per share growth, contributing to the stock’s decline as investors adjusted expectations for future performance.

As the week kicks off, market sentiment remains fragile amid rising oil prices and a rebound in Treasury yields, which have placed renewed pressure on stocks. The Dow’s nearly 400-point drop highlights the caution among investors, especially as geopolitical tensions and economic uncertainties weigh on the outlook. While the energy sector found support from surging crude prices, most other sectors struggled, reflecting broader market jitters. With key economic data releases and the start of earnings season on the horizon, including results from Delta Air Lines and JPMorgan Chase, investors are bracing for potential volatility and further insights into the Federal Reserve’s policy trajectory.