US Markets Slip as Trump Rejects Iran Peace Plan, Oil Prices Surge

US stock indexes declined on Monday following President Donald Trump's dismissal of an Iranian peace proposal, which caused crude oil prices to climb sharply. The increase in oil prices has reignited worries about inflation, leading to a rise in Treasury yields and concerns about the broader economic outlook.

Last week, Iran presented a peace plan at the United Nations General Assembly in New York, reportedly communicated to the United States through Qatari intermediaries. However, President Trump publicly rejected the offer on Saturday. Despite this, he indicated in an Axios interview on Sunday that US negotiators might continue discussions in the coming week.

Oil prices reacted swiftly, rising approximately 2 percent to near $107 per barrel. This surge has placed additional upward pressure on inflation, a key factor for Federal Reserve policy decisions. Art Hogan, chief market strategist at B Riley Wealth, noted that persistent inflationary pressure from energy prices could motivate the Fed to maintain or increase interest rates.

The US Treasury market responded as well, with yields on longer-dated bonds reaching levels not seen in decades. Higher yields typically reflect investor expectations of rising interest rates and inflation.

Within the stock market, technology shares showed relative strength. Nvidia's stock climbed 3.2 percent following the company's announcement of a $150 billion share repurchase program, marking the largest buyback approval in its history. This move provided some support to the market, though it was insufficient to offset broader declines.

Major indices closed lower, with the Dow Jones Industrial Average dropping 245.02 points, or 0.47 percent, to 51,583.60. The S&P 500 fell 36.08 points, or 0.46 percent, ending at 7,707.50. The Nasdaq Composite slipped 175.16 points, or 0.65 percent, to 26,893.56.

Consumer discretionary stocks led the losses among S&P 500 sectors, down 1.3 percent. Notable decliners included DoorDash and Carvana, which decreased by 6 percent and 5 percent respectively.

Investors found some respite from recent trade tensions as the US-China summit concluded last week with both nations agreeing to reduce tariffs on $60 billion worth of goods imported from each other. The trade truce was also extended by two months, through January 10, easing some market concerns about escalating trade conflicts.

Looking ahead, market participants are focusing on key economic data due later this week. The August Personal Consumption Expenditures Price Index and the September nonfarm payroll report will be closely watched for indications of inflation and labor market conditions. These reports could influence the Federal Reserve's policy decisions going forward.

According to CME Group's FedWatch Tool, traders assign a 68 percent probability that the Fed will raise interest rates by at least 25 basis points at its October meeting, following the increase in September.

Some market experts question the Fed's timing. Thomas Hayes, chairman at Great Hill Capital, cautioned that historically, raising rates during a short-term supply shock often leads to negative outcomes. He suggested that the Fed may be acting prematurely by hiking rates in September and potentially again in October.

Fed officials Michelle Bowman, Lisa Cook, and Thomas Barkin are scheduled to speak on Monday, potentially providing further insight into the central bank's stance. Their comments will be monitored closely for signs of continued hawkishness.

In individual stock movements, Tesla shares fell 2.7 percent after JP Morgan lowered its price target, citing weak delivery numbers for the third quarter. Meta Platforms dropped nearly 4 percent after a strong 13 percent gain last week.

Market breadth was negative, with declining stocks outnumbering advancing ones by roughly 2.8 to 1 on the NYSE and 3 to 1 on the Nasdaq. The S&P 500 saw no new 52-week highs and 19 new lows. The Nasdaq posted 14 new highs but recorded 127 new lows, highlighting uneven market performance.

Overall, the market's reaction to geopolitical developments, rising energy prices, inflation concerns, and Federal Reserve policy expectations contributed to a cautious trading environment at the start of the week.