US markets drifted lower in early trading Monday, August 31, as crude oil prices moved higher following renewed hostilities between the United States and Iran, extending a war that just entered a fresh, more volatile phase after weeks of relative calm.

How Futures and Global Markets Reacted

September S&P 500 E-mini futures fell 0.23%, and September Nasdaq 100 E-mini futures declined 0.17%, pointing to a lower open on Wall Street. Japan's Nikkei 225 closed slightly lower, having fallen as much as 2.37% earlier in the session as chip-related stocks tumbled in sympathy with Friday's losses among their US peers, before trimming most of those losses in the afternoon as regional markets and US equity futures staged a partial rebound.

Oil Prices Climb on Renewed Strikes

WTI crude traded up roughly 2.7% following the weekend's exchange of attacks between US and Iranian forces near the Strait of Hormuz, giving a lift to major oil producers: Chevron rose 2.3%, Exxon Mobil gained 2.1%, Shell added 1.22%, and BP climbed 1.7%. The move continues a familiar pattern that's defined markets for much of 2026 — any renewed flare-up in the Hormuz standoff tends to immediately ripple through both energy prices and the broader equity market, with energy stocks benefiting even as the wider market comes under pressure.

A Hawkish Fed Adds to the Pressure

Monday's session comes on the heels of Federal Reserve Chair Kevin Warsh's hawkish keynote address at the Jackson Hole Economic Policy Symposium, in which he reaffirmed the central bank's focus on fighting inflation. Following that speech, the CME FedWatch tool showed a 64% probability of a rate hike to 3.75%-4.0% at the Fed's September 16 meeting — a sharp jump from where expectations stood just days earlier, and a combination of hawkish Fed signaling and rising oil prices that's proving particularly unwelcome for risk assets.

Awaiting Jobs Data

Markets are also bracing for this week's closely watched employment report, which will offer the next major data point shaping the Fed's rate decision. Given how directly the July jobs report — which showed an unexpected decline in employment — had shifted rate expectations dovish just weeks earlier, this week's release carries outsized importance for determining whether Warsh's hawkish Jackson Hole tone holds up against incoming labor market data.

The Bigger Picture

Monday's price action reflects the now-familiar three-way tug-of-war shaping markets through the second half of 2026: renewed Iran-related military escalation pushing oil and energy stocks higher while weighing on broader risk sentiment; a Fed chair signaling continued inflation vigilance even as growth signals soften; and investors caught between these competing forces ahead of a data-heavy week. With the weekend's exchange of strikes marking the first significant military escalation in over a month, traders will be watching closely for any further developments out of the Strait of Hormuz that could extend Monday's cautious tone into the rest of the week. For live market data, see CNBC Markets.

With oil, Fed policy, and Iran-related geopolitical risk all pulling in the same direction Monday, markets are once again demonstrating just how tightly interconnected this year's macro and geopolitical crosscurrents have become.