Wall Street falls as Middle East conflict stokes inflation worries
Wall Street’s main indexes fell on Tuesday, with the S&P 500 hitting its lowest in over two months, as investors braced for the impact of a widening Middle East conflict on oil prices, inflation and global trade.
Tehran’s threat to attack any vessel attempting to transit the Strait of Hormuz, combined with production halts by several Middle Eastern oil and gas producers, has driven up global shipping rates and prices of crude and natural gas.
The strait, a critical chokepoint, carries roughly one-fifth of the world’s total oil consumption.
“Investors worry about additional inflation coming down the road. The main concern is that (oil prices) goes to over $100 a barrel and stays there,” said Robert Pavlik, senior portfolio manager at Dakota Wealth.
“Hopefully, this will be a quick and decisive war. But there are just a lot of questions, so I wouldn’t go out on a limb.”
Industries such as airlines and travel were knocked back for a second day, with American Airlines and Norwegian Cruise fell 2.4% and 6%, respectively.
At 11:42 a.m. ET, the Dow Jones Industrial Average fell 831.86 points, or 1.70%, to 48,072.92, the S&P 500 lost 110.48 points, or 1.61%, to 6,771.14 and the Nasdaq Composite lost 385.54 points, or 1.69%, to 22,363.32.
The sell-off was broad and all major sectors on the S&P 500 were trading in the red. The benchmark index dropped below its 100-day moving average - an indicator of bearish long-term sentiment.
Technology stocks fell 1.5%, with Nvidia slipping 1.7%, after gaining in the previous session.
The small-caps index slid 2.6%, while Wall Street’s fear gauge, the CBOE volatility index, spiked to a fresh three-month high of 27.30 points.
Meanwhile, the private credit market was rattled after Blackstone’s flagship credit fund, BCRED, saw a surge in redemption requests. Blackstone slid 6.1%, while Ares Management dropped 2.8% and Blue Owl Capital lost 5.1%.
INFLATION TO WEIGH ON FED THINKING
Investors feared that the higher oil prices could fuel inflation and complicate central bank policy decisions already strained by tariff-driven price increases.
The U.S. 10-year Treasury yield touched a one-week high and investors pushed back expectations for a 25-basis-point interest rate cut by the Federal Reserve to September from July, according to LSEG-compiled data.
New York Fed President John Williams said it is too soon to gauge the impact of the war with Iran, but the American economy has proved resilient to energy price shocks.
The investors scooped up the dollar and that consequently weighed on prices of precious metals. Materials tanked the most among the S&P 500 sectors, falling 3.3%.
Beyond geopolitics, uncertainty prevailed over how disruptive AI models might be for traditional businesses. MongoDB’s shares plunged 26.3% after the database software company forecast quarterly profit below estimates.
Target gained 4.9% after new CEO Michael Fiddelke pledged a return to sales growth and issued an upbeat profit outlook.
Paramount Skydance fell 7% after Fitch Ratings downgraded the company’s rating to junk following its recent proposed acquisition of Warner Bros Discovery.
Declining issues outnumbered advancers by a 7.68-to-1 ratio on the NYSE, and by a 5-to-1 ratio on the Nasdaq.
The S&P 500 posted 13 new 52-week highs and five new lows, while the Nasdaq Composite recorded 24 new highs and 175 new lows.