The S&P 500 has broken below the 7,640 support level as a hawkish Fed and the escalating US-Iran conflict weigh on stocks. Traders now price a rising chance of a September rate hike, while oil prices and Treasury yields have jumped on the Middle East tensions.
S&P 500 breaks a key support level
The S&P 500 is breaking through a major support zone around 7,640 as hawkish Fed expectations and the US-Iran war weigh on the stock market. Both stories threaten future growth and earnings expectations, and the index has been under pressure since Fed Chair Warsh delivered a hawkish speech at the Jackson Hole Symposium.
Warsh leaned against the recent easing in financial conditions, which retightened quickly and pressured equities as tighter conditions dampen growth expectations. He also reiterated that the Fed is focused solely on inflation and that progress has been slow.
Rate-hike odds climb
As a result, rate hike probabilities for the September meeting have risen to roughly 67%. A soft US CPI report could pull that probability below 50% and deter the Fed from hiking. If the probability stays at or above 50%, the Fed may hike anyway, since holding off would send a dovish signal and ease financial conditions again.
The best-case scenario combines a soft CPI print with a de-escalation in the Middle East. The worst case — a hot CPI reading without de-escalation — could send the market down to its July 30 lows.
Oil and yields jump on Iran tensions
The conflict is already rattling other markets. US crude oil futures rose 5.2% to $90.22 a barrel, the highest settlement since July 23, after the United States launched new attacks on Iran following fresh Iranian strikes on shipping through the Strait of Hormuz. The 10-year Treasury yield rose 4 basis points to 4.795%, its highest settlement in nearly three years.
The broader rally has felt the strain too. The Dow Jones Industrial Average declined 0.8%, undercutting its 50-day moving average to a one-month low, while the Nasdaq composite gave up 1%.
What traders are watching next
On the daily chart, sellers are expected to pile in on the break of the 7,640 support, with a defined risk above it targeting a drop into the lower bound of the current channel. Buyers, meanwhile, need the price back above the support to position for a rally toward new record highs.
Sources: InvestingLive, Investor's Business Daily
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