U.S. stocks rise as oil nears $87 on Iran escalation

U.S. stocks rose in a muted session as Treasury yields stalled and crude climbed toward $87 a barrel on renewed Iran-U.S. clashes. Equity and bond moves stayed narrow, with traders reluctant to add risk ahead of the next turn in a six-month conflict that has already lifted oil more than 50 percent this year.

"At some point, one of the sides may see a need to escalate in order to break this cycle," said Hamidreza Azizi, senior Iran analyst at the Crisis Group. "So that could bring the two sides to a point that they have been trying to avoid until now, which is a full-scale war."

Brent crude, the international benchmark, traded above $90 a barrel, while West Texas Intermediate futures approached $87, up about 7 percent this week after Washington and Tehran exchanged fresh strikes. The U.S. 10-year Treasury yield, which had climbed to 4.80 percent — its highest since January 2025 — stalled as the bond rally paused, with the two-year yield near 4.40 percent. The Federal Reserve's benchmark rate sits at 3.50 percent to 3.75 percent.

The standoff centers on the Strait of Hormuz, through which about a fifth of the world's traded oil normally flows. Iran has largely shut the waterway since the war began Feb. 28, and the renewed fighting has pushed U.S. gasoline prices to $4.10 a gallon, up from $3.19 a year earlier. Higher energy costs complicate the Fed's path, with Governor Michael Barr saying he would support a rate hike "if inflation appears not to be moderating sufficiently."

Oil's climb keeps a risk premium in markets

Tuesday's modest gains snapped three straight negative sessions for Wall Street, a stretch that had left the S&P 500 down 0.71 percent and the Nasdaq Composite off more than 1 percent as oil's surge revived rate-hike jitters. The rebound was broad but shallow, with energy names standing to benefit from higher crude while consumer sectors face pressure from fuel costs feeding into inflation. The move also interrupted what had been a calm five-month winning run for equities before the Hormuz shock.

The muted tone extended across assets. Bond yields in Japan and the U.K. pushed toward multi-decade highs as the inflation scare reignited, while euro-area consumer prices rose to 3.3 percent in August, well above the European Central Bank's target and all but locking in a rate hike. Markets lean toward a quarter-point increase from the Fed this month, according to the CME Group's FedWatch tool.

Traders are watching for any sign of de-escalation, which could quickly unwind recent gains, or further military action that analysts say could push Brent toward $95 and beyond. Weekly U.S. inventory data due Wednesday will offer the next read on domestic demand, with a larger-than-expected drawdown in crude stocks reinforcing the bullish tone.

This article is for informational purposes only and does not constitute investment advice.