US Stock Futures Flat as Rate Hike Bets Rise Amid Geopolitical Tensions

U.S. stock futures held steady in overnight trading on Monday, following a negative session on Wall Street, as investors weighed heightened geopolitical risk in the Middle East and growing expectations for a more hawkish Federal Reserve.

Oil Prices Surge on Renewed Hostilities

Investor sentiment was dampened by a sharp rise in oil prices after the U.S. and Iran reportedly resumed military hostilities, according to Investing.com. The escalation has raised concerns about continued supply disruptions, particularly through the vital Strait of Hormuz, and has cast doubt on diplomatic efforts in the region.

The surge in energy costs is fueling concerns about persistent inflation, which could pressure the Federal Reserve to maintain a restrictive monetary policy. On Monday, these concerns contributed to a broad market decline:

• The S&P 500 fell 0.3%.
• The Dow Jones Industrial Average dropped 0.7%.
• The NASDAQ Composite declined 0.1%.

Rate Hike Expectations Intensify

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Markets are increasingly pricing in the likelihood of another interest rate hike this year, following hawkish rhetoric from Federal Reserve officials at the recent Jackson Hole economic symposium. Officials reiterated the central bank's commitment to its 2% annual inflation target, spurring bets on further policy tightening.

According to the CME FedWatch Tool, markets now see a 64.4% probability of a 25-basis-point rate hike by the Fed in September. This marks a significant increase from the 42.7% chance priced in just last week.

Cautious Market Outlook

Despite Monday's losses, Wall Street indexes recorded strong gains for August. However, investors remain cautious, with September historically being a weak month for equities. Traders are also looking ahead to key economic data, including the nonfarm payrolls report due on Friday, for further clues on the Fed's path forward.

As of 7:50 PM ET (23:50 GMT), S&P 500 Futures, Nasdaq 100 Futures, and Dow Jones Futures were all trading near the flatline, indicating investor indecision ahead of the next major market catalyst.