Major U.S. indexes closed lower Wednesday as renewed U.S.-Iran strikes, higher crude prices and interest-rate concerns outweighed continued strength in chip stocks.
By yourNEWS Media Newsroom
U.S. stocks fell Wednesday as escalating Middle East tensions and rising oil prices pulled Wall Street back from record highs and renewed investor concerns about inflation.
The S&P 500, Nasdaq Composite and Dow Jones Industrial Average all ended lower, with financial and technology shares weighing on the broader market. Small-cap stocks performed worse than large-cap indexes, with the Russell 2000 underperforming.
Preliminary data showed the S&P 500 lost 54.11 points, or 0.74%, to close at 7,555.67. The Nasdaq Composite fell 230.97 points, or 0.85%, to 26,862.93. The Dow dropped 581.84 points, or 1.13%, to 50,725.95.
The pullback came as investors took profits after recent record highs and reassessed the risk that fighting in the Middle East could keep energy prices elevated. The United States and Iran exchanged another round of airstrikes, testing a fragile ceasefire and adding to uncertainty over the duration of the conflict.
Oil prices rose Wednesday, increasing concerns that higher energy costs could feed into broader inflation and complicate the Federal Reserve’s path on interest rates.
“This market continues to demonstrate a tug of war between fundamentals in the U.S. economy, which are incredibly positive, and concerns that the duration of the conflict in the Middle East will lead to downside risks,” said Bill Northey, senior investment director at U.S. Bank Wealth Management in Billings, Montana.
Northey said investors are focused heavily on how long the Strait of Hormuz remains closed.
“Our framework is centered around the duration of the closure of the Strait of Hormuz as the primary input to inflation expectations,” he said.
“The longer the duration of that closure, the less likely the Federal Reserve will be able to ease in 2026,” Northey added.
Markets have quickly adjusted rate expectations. According to CME’s FedWatch tool, investors now see more than a 40% chance of a rate hike at the Federal Reserve’s December meeting, up from 9.1% one month earlier.
New York Fed President John Williams said the central bank does not currently need to change interest rates, despite upside inflation risks. He said monetary policy is “in the right place.”
Economic reports released Wednesday showed a stable labor market and continued expansion in the services sector. However, input prices remained elevated, and business spending plans appeared weak as companies evaluated energy costs and geopolitical risks.
The Federal Reserve’s Beige Book also showed that economic activity strengthened in recent weeks while employment changed little. The report said the effects of higher energy prices tied to the war were widespread.
Technology shares were mixed. Chip stocks advanced, signaling continued investor enthusiasm for artificial intelligence. Marvell, Intel, Qualcomm and Sandisk outperformed.
Most of the Magnificent Seven group of AI-related megacap stocks, however, moved lower. The S&P Software & Services index also declined, continuing a stretch of pressure tied to fears that artificial intelligence could disrupt parts of the software industry.
“The AI names are trading on their own completely separate world, largely oblivious to macro and geopolitical risk, at least within reason,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.
“And so there’s going to be a bid for those names, especially on days where everything else looks a little bit less attractive,” he said.
Asset managers also declined after Switzerland’s Partners Group capped withdrawals from an $8.6 billion private equity fund. KKR, Blackstone, Blue Owl and Ares Management all lost ground.
GameStop advanced after the original meme-stock company reported higher quarterly revenue and announced a $2 billion share buyback program.
Investors were also watching developments around SpaceX, which plans to price its initial public offering at $135 per share and raise a record $75 billion, according to a source familiar with the matter who spoke to Reuters on Tuesday.
Broadcom results were expected shortly after the market close.
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