The ceasefire collapses, oil jumps and the Dow drops 577 points

Good morning. The Middle East shook markets last night. President Trump declared the ceasefire with Iran over, and the Dow fell 577 points, or 1.1%, at one point sinking by as many as 700. Volatility, which had stayed quiet all summer, came roaring back.

It began with attacks on merchant ships in the Strait of Hormuz. The U.S. retaliated by hitting more than 80 targets inside Iran, and Iran fired missiles at U.S. bases. With Washington also pulling the waiver that let Iranian oil be sold, crude jumped 6% in a day and more than 10% over two days. Some war-risk insurers began advising shipowners to halt passage through Hormuz.

Oil prices feed into inflation, and from there into the Fed. The minutes of the Fed’s June meeting, released the same day, showed a few officials saw grounds for a rate hike, while others thought policy was already too tight and favored cuts. A rise in oil strengthens the hawkish side. Ten-year yields in the U.S., Germany and the U.K. all hit four-week highs.

AI stocks fared no better. Micron has fallen more than 20% from its peak, officially a bear market, and the Nasdaq dropped over 300 points.