Hormuz and the Fed: Markets Between Oil and Rates

Financial markets are facing two deeply interconnected sources of risk. The first runs through the Strait of Hormuz, where the conflict with Iran continues to disrupt maritime traffic and keep oil prices elevated. The second leads to Jackson Hole, where Kevin Warsh will deliver his first address as Chair of the Federal Reserve.

Before the symposium, however, the key event is scheduled for today, August 19, at 2:00 p.m. in Washington, corresponding to 8:00 p.m. in Italy. This is not yet the Jackson Hole speech, but the release of the minutes from the Federal Open Market Committee meeting held on July 28–29.

The distinction is important. The minutes will provide a detailed account of the debate within the Fed and may anticipate the themes Warsh will develop in Wyoming. The symposium organised by the Federal Reserve Bank of Kansas City will take place from August 27 to 29 and will focus on “Financial Innovation: Implications for Payments and Policy.”

Kevin Warsh’s first Jackson Hole

The 2026 edition will be Warsh’s first Jackson Hole symposium as Federal Reserve Chair. His keynote address is expected on Friday, August 28, and will be assessed primarily for signals about the central bank’s future reaction function.

The market will not simply be looking for a forecast for the September meeting. Investors will try to understand how the new Fed intends to manage an increasingly difficult combination of factors:

• a slowing labour market;

• moderating core inflation;

• a sharp increase in energy prices;

• bond yields at multi-year highs;

• a rising public deficit and growing Treasury supply;

• the possibility of a prolonged geopolitical shock.

In July, the Fed maintained the federal funds target range at 3.50–3.75%. The decision was approved by nine votes to three, an unusual level of dissent that signals significant divergence within the FOMC.

The three dissenting members would have preferred a 25-basis-point increase. Today’s minutes will need to clarify how widely this position is shared by other non-voting members and to what extent the Fed views the slowdown in inflation as temporary.

The Fed minutes arrive at a delicate moment

The latest macroeconomic data depict a US economy that is less straightforward than in previous months.

In July, nonfarm payrolls fell by 23,000, while the unemployment rate remained at 4.1%. On the inflation front, the CPI increased by 0.1% month on month and 3.4% year on year, slowing from 3.5%. Core inflation declined from 2.6% to 2.5%.

Under normal conditions, a weaker labour market and falling core inflation would support a more accommodative monetary policy. The problem is energy: the energy component of the CPI has already risen by 14.7% year on year, and the latest increase in oil prices could gradually feed through into transportation, production and consumer prices.

The market currently assigns a probability of approximately 67% to rates being left unchanged at the September meeting. Nevertheless, a significant share of investors still considers another increase possible.

Hormuz supports oil prices

On the geopolitical front, the Strait of Hormuz remains the main source of tension for the global energy market.

Before the conflict, approximately 20% of global oil and liquefied natural gas flows passed through this route. Commercial traffic is now severely reduced, despite conflicting statements about whether the waterway is actually open.

The United States maintains that the strait is operational, while Tehran continues to describe it as effectively closed. The reality revealed by shipping traffic is more problematic: only six commodity vessels passed through on Tuesday, down from nine during the previous session and below the recent daily average of eleven.

Shipowners therefore continue to regard transit risk as elevated. Even without a complete physical blockade, higher insurance costs, military threats, attacks on vessels and the possibility of further sanctions are sufficient to restrict shipments.

Brent reaches a three-week high

Brent crude has risen towards $91.79 per barrel, its highest level since July 30, while WTI has reached approximately $85.79, its highest since the end of the same month.

The increase does not merely reflect current physical demand; it also incorporates a geopolitical risk premium. Market participants are considering the possibility that reduced exports from the Gulf could persist for longer than expected or that further attacks could involve infrastructure, ports and oil tankers.

The diplomatic outlook appears fragile. The ceasefire expired without a permanent agreement, while statements from Washington and Tehran indicate a hardening of their respective positions. Despite the absence of new large-scale attacks over the past few hours, commercial shipping remains severely constrained.

The $100 threshold for Brent is not yet the central scenario, but it could quickly become credible under the following conditions:

• new attacks against tankers or infrastructure;

• a further reduction in traffic through Hormuz;

• direct involvement by other Gulf countries;

• an expansion of the conflict towards Oman or the United Arab Emirates;

• definitive failure of mediation efforts;

• reduced exports from Iran, Iraq or the UAE.

The Fed cannot control the oil shock

The Federal Reserve cannot increase the oil supply or reopen maritime routes. It can, however, respond to the effects of the energy shock on inflation and on household and business expectations.

This is the decisive variable for the markets.

If the Fed regarded higher energy prices as temporary, it could tolerate an increase in headline CPI and focus more heavily on the weakening labour market. If it feared that oil and transportation costs could feed through into core inflation, however, the probability of rates remaining high for longer—or even of another increase—would rise.

Today’s minutes relate to a meeting held before the latest intensification of the Hormuz crisis. They will therefore not fully incorporate the most recent developments. Nevertheless, they will help investors understand how sensitive the FOMC already was to energy risk and how broad the support for tighter policy had become.

Jackson Hole will carry greater weight because it will allow Warsh to comment on a more up-to-date scenario.

Treasuries: the real connection between the Fed and equities

The bond market represents the main channel through which the Fed, oil and geopolitics reach Wall Street.

After reaching approximately 4.75%, the ten-year Treasury yield has retreated towards 4.69%. The 30-year yield remains close to 5.27%, after reaching its highest level since 2007.

The rise in yields reflects several factors:

• the risk of higher energy inflation;

• expectations of a restrictive Fed;

• the widening public deficit;

• increased debt issuance;

• the higher term premium demanded on long maturities;

• the technology sector’s growing need for capital.

During today’s session, the stabilisation of Treasury yields has allowed US futures to recover slightly: S&P 500 futures are up approximately 0.1%, while Nasdaq 100 futures are gaining around 0.2%. The movement remains limited, however, as investors await the minutes.

Nasdaq 100 more sensitive to the Fed

Of the two main US equity indices, the Nasdaq 100 is more sensitive to interest-rate signals.

Large technology companies incorporate valuations based on earnings and cash flows expected many years into the future. When the rate used to discount those cash flows rises, their present value tends to decline.

This mechanism particularly affects:

• semiconductor companies;

• artificial intelligence infrastructure;

• high-growth software;

• cloud computing;

• companies trading at elevated valuation multiples;

• businesses financing substantial investment through debt.

The technology sector also faces a second source of pressure. Large investments in data centres, chips and energy capacity require increasing amounts of capital. Higher bond yields raise financing costs and make already demanding valuations more difficult to justify.

The Fed does not therefore need to actually raise rates to trigger a Nasdaq 100 correction. It is sufficient for the market to begin pricing in higher rates for longer and structurally higher real yields.

What could happen to the Nasdaq 100

More hawkish-than-expected minutes, featuring an extensive discussion of a possible rate increase, could lead to:

1. higher two- and ten-year Treasury yields;

2. a stronger dollar;

3. compression of technology-sector valuation multiples;

4. selling pressure on semiconductor and AI-related stocks;

5. greater Nasdaq 100 underperformance relative to the S&P 500.

A more accommodative scenario, in which the majority of the FOMC expressed concern about employment and regarded the energy shock as temporary, could instead encourage lower yields and a rebound in growth stocks.

The risk for the Nasdaq nevertheless remains asymmetric. Following its strong annual advance and with valuations elevated, a hawkish surprise could produce a more powerful reaction than the benefit generated by a simple confirmation of current expectations.

S&P 500 more diversified, but not immune

The S&P 500 has a more balanced composition but remains heavily influenced by the large technology companies that account for a substantial share of its market capitalisation.

Compared with the Nasdaq 100, the index may benefit more from rising oil prices through:

• energy producers;

• integrated oil companies;

• oilfield service providers;

• energy infrastructure and transportation businesses.

This component may partially offset pressure from the technology sector. However, oil prices remaining consistently above $90 would also have negative consequences for several industries:

• higher transportation and logistics costs;

• lower margins for industrial companies;

• pressure on airlines and tourism;

• weaker discretionary consumption;

• higher costs for plastics and chemicals;

• reduced household disposable income.

A moderate increase in oil prices could therefore encourage an internal rotation within the S&P 500 from growth stocks towards energy, defence and value shares. An acceleration in Brent above $100 would be more likely to become a systemic risk to earnings across the entire index.

Warsh must manage two opposing risks

Warsh’s first Jackson Hole symposium comes at a time when the Fed must decide which risk should take priority.

On the one hand, the employment report and slowing core inflation suggest caution over further monetary tightening. On the other, oil prices, the public deficit and long-term yields indicate that inflationary pressures have not been completely eliminated.

An excessively hawkish message could:

• push Treasury yields even higher;

• trigger a correction in the Nasdaq 100 and S&P 500;

• strengthen the dollar;

• tighten financial conditions;

• intensify the economic slowdown.

An excessively accommodative message could instead:

• weaken the dollar;

• temporarily support equities;

• reduce short-term yields;

• raise doubts about the Fed’s determination;

• strengthen oil-related inflation expectations.

The most likely solution is data-dependent communication: no advance commitment to either rate increases or cuts, with particular attention to energy prices, inflation expectations and labour-market developments.

Three scenarios for the markets

Restrictive Fed and Hormuz still blocked

This would be the most difficult scenario for Wall Street. Oil prices and yields would rise simultaneously, compressing both corporate margins and equity valuations.

The Nasdaq 100 would probably suffer the most. The S&P 500 could receive partial support from the energy sector, but this would be unlikely to fully offset weakness in technology, consumer and industrial shares.

Brent would have room to advance towards $95–$100, with potentially higher extensions in the event of further attacks.

Cautious Fed and stable geopolitical tensions

Under this scenario, the minutes would offer no clear directional signal and Warsh would keep all policy options open.

The Nasdaq 100 and S&P 500 could consolidate at elevated levels, with an internal rotation between technology, energy and defensive sectors. Oil would remain supported by the geopolitical risk premium without necessarily moving above $100.

More accommodative Fed and a credible reopening of Hormuz

This would be the most favourable scenario for equities. Yields and oil prices would fall simultaneously, reducing both the discount rate applied to growth stocks and the risk of margin compression.

The Nasdaq 100 could outperform as real yields declined. The S&P 500 would also benefit, although the energy sector could retreat alongside crude oil.

Volatility will not end with the minutes

The release scheduled for 8:00 p.m. Italian time represents the first test, not the definitive one.

The minutes will provide a snapshot of the FOMC in July. Jackson Hole will instead allow Warsh to update the Fed’s message in light of the renewed acceleration in oil prices, the situation in the strait and developments in bond markets.

For the Nasdaq 100 and S&P 500, the central variable will be the reaction of Treasury yields. For oil, the decisive factors will remain the actual number of vessels transiting Hormuz, the willingness of shipowners to use the route, insurance costs and any potential expansion of the military conflict.

The two crises are not separate. Hormuz may keep inflation elevated; higher inflation may make the Fed more restrictive; and a more restrictive Fed may compress equity valuations. The direction of the markets will therefore depend on the balance between energy risk and the monetary-policy response.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, an invitation to invest or a trading recommendation.