Stocks Rise As Fed Hike Bets Ease And Oil Slips

U.S. stocks edged higher Thursday as falling oil prices and weaker U.S. economic signals reduced pressure on markets, while the dollar reached a two-week high as investors monitored the unresolved U.S.-Iran standoff over the Strait of Hormuz.

The S&P 500 gained 0.17% to 7,445.72, while the U.S. dollar index rose 0.32% to 100.01, its highest level since July 31, according to Reuters. Traders priced a 65% probability that the Federal Reserve would leave rates unchanged at its September meeting, up from 50% on Wednesday.

Oil Falls Below $90 as Demand Signals Weaken

Brent crude fell $1.66, or 1.9%, to $87.32 a barrel, while West Texas Intermediate declined $1.62, or 1.95%, to $81.65 in Thursday trading, according to Reuters. Both benchmarks had gained during the preceding six sessions.

U.S. commercial crude inventories increased by 17.4 million barrels in the week ended Aug. 7 to 424.4 million barrels, according to the Energy Information Administration. The increase was the largest weekly gain since January 2023 and compared with a Reuters poll expectation for a 1.4 million-barrel draw.

The demand outlook also weakened. OPEC lowered its 2026 global oil-demand growth forecast to 580,000 barrels per day, while the IEA projected a 1.6 million-barrel-per-day contraction in consumption for the year, according to their latest market assessments.

Hormuz Disruption Limits Oil’s Downside

The weaker demand outlook has not removed the supply risk surrounding the Strait of Hormuz. Reuters reported that vessel crossings excluding container ships fell to five on Wednesday, the lowest level in three weeks, according to Kpler shipping data.

The United States and Iran also continued to dispute the conditions for reopening the waterway. Reuters reported that Washington said Iran had failed to meet obligations under an interim arrangement, while Tehran said the United States had not fulfilled commitments related to ending its blockade of Iranian ports.

The competing forces are visible in the oil market. Higher U.S. inventories and lower demand forecasts are weighing on prices, while restricted Hormuz traffic and continuing Middle East supply disruptions are limiting the decline. Reuters reported that UBS analyst Giovanni Staunovo expected the downside to remain limited while Hormuz flows stayed depressed.

Dollar Hits Two-Week High Despite Softer Fed Expectations

The dollar index rose 0.32% to 100.01 after reaching 100.08, its highest level since July 31, according to Reuters. The move came even as traders increased the probability of a September Fed hold following softer U.S. economic data.

The currency’s strength was not uniform. The dollar slipped 0.03% against the yen to 159.38, while expectations for an earlier Bank of Japan rate increase were reinforced by Japan’s July producer-price inflation. Reuters reported that Japan’s producer price index rose 7.2% year over year in July.

The dollar’s broader advance reflected renewed demand for the U.S. currency as investors assessed geopolitical risks and energy exposure. Reuters reported that higher energy prices are expected to have a greater impact on the euro zone and Japan because both economies are major energy importers, while the United States is relatively insulated by domestic oil production.

Fed Hold Bets Strengthen After US Data

Traders increased the implied probability of a September Fed hold to 65% from 50% after the latest U.S. economic and inflation data, according to Reuters. The September Federal Open Market Committee meeting is scheduled for Sept. 15-16.
The shift followed July employment and inflation data that reduced expectations for another rate increase. The Federal Reserve’s next decision will come after additional economic releases, leaving markets dependent on incoming data rather than a predetermined policy path.

The combination of lower oil prices and reduced expectations for additional monetary tightening has provided support to risk assets. Reuters reported that the semiconductor index rose about 2.5% on Wednesday as AI infrastructure companies reported strong earnings, while the Nasdaq outperformed other major U.S. indexes.

AI Stocks Provide Additional Support

Technology remained an important source of support for U.S. equities. The semiconductor index gained about 2.5% Wednesday, its largest daily increase in almost a week, according to Reuters. The move followed earnings from AI infrastructure companies.

Jefferies economist Mohit Kumar said the bank remained overweight on the AI sector, citing continued strength in earnings and capital expenditure among AI infrastructure companies. He also said the combination of substantial cash in the financial system and an expected Fed decision not to hike rates should support risk assets.

The broader global market response was also positive. MSCI’s world stock index rose 0.10%, Europe’s STOXX 600 gained 0.11% and MSCI’s Asia-Pacific index excluding Japan advanced 1.08%, according to Reuters. South Korea’s benchmark jumped 3.78%, while Japan’s Nikkei gained 1.67%.

Markets Balance Oil Supply Risk Against Growth Signals

The current market setup has two distinct signals. Oil is under pressure from a 17.4 million-barrel U.S. inventory build and weaker 2026 demand forecasts, while the sharply reduced flow through Hormuz continues to constrain physical supply.

For equities, lower crude prices can reduce the immediate inflation pressure associated with energy costs, while a higher probability of a Fed hold can support interest-rate-sensitive assets. At the same time, a prolonged Hormuz disruption could reverse that relief if supply constraints push crude prices higher again.

The immediate positive signal is that global equities have continued to gain despite the geopolitical uncertainty. With the S&P 500 up 0.17%, the semiconductor index up about 2.5% and the probability of a September Fed hold at 65%, markets are currently responding more strongly to easing monetary and demand pressures than to the remaining oil-supply risk.