NEW YORK – U.S. stocks experienced a downturn on Tuesday as oil prices surged once again, impacting investor sentiment and causing the markets to tremble. Investors had previously shown some relief over the Israel-Iran tensions, but these concerns resurfaced, affecting financial markets. The S&P 500 decreased by 0.8% amid renewed fears of escalation in the conflict and indications of weakening support from one of the U.S. economy’s key sectors. As a result, Wall Street’s primary health gauge fell nearly to where it began the week. The Dow Jones Industrial Average saw a decline of 299 points, or 0.7%, while the Nasdaq composite faced a 0.9% reduction.
Contributing to the plummet was a rise in oil prices. The benchmark U.S. crude barrel leaped by 4.3% to $74.84, with Brent crude, the global standard, gaining 4.4% to $76.45 per barrel. The hike intensified following a statement from President Donald Trump, who demanded “UNCONDITIONAL SURRENDER!” on social media in regards to Israel’s battle with Iran. Moreover, Trump assured that they are not planning an immediate attack on Iran’s leader, adding, “at least for now.” Prior to this, Trump had departed early from a Group of Seven summit, followed by suggestions that residents in Iran’s capital should evacuate urgently.
The ongoing tensions bear potential repercussions for oil and gasoline prices, given Iran’s significant role as an oil producer and its strategic location at the Strait of Hormuz, a vital transit point for global crude supplies. Previous confrontations in this region have historically led to temporary oil price spikes, often stabilizing once it becomes clear that oil supplies remain unaffected.
Typically, rising oil prices might benefit solar industry stocks as they encourage a shift towards alternative energy sources. However, solar stocks were adversely impacted on Tuesday over concerns that U.S. Congress might phase out tax credits for clean energy technologies. Enphase Energy witnessed a 24% drop, and First Solar fell by 17.9%.
Bond markets experienced a fall in Treasury yields following a report showcasing reduced consumer spending in U.S. retail outlets last month, lower than both the previous month and expectations from economists. Robust consumer spending has been a pillar keeping the economy afloat, albeit part of May’s decline is believed to be a realignment to standard patterns after April’s surge driven by anticipatory car purchases ahead of Trump’s tariffs.
“Today’s data indicate consumers are slowing down their spending, but they haven’t stopped completely,” noted Ellen Zentner, chief economist at Morgan Stanley Wealth Management.
Nevertheless, not all was bleak on Wall Street. Jabil soared by 8.9% after they posted stronger-than-anticipated quarterly profits. CEO Mike Dastoor attributed this to heightened demand around artificial-intelligence technologies among other contributors. In contrast, Verve Therapeutics surged by 81.5% following Eli Lilly’s announcement of a $1 billion acquisition deal, which could escalate to $1.3 billion based on stipulated conditions. Nonetheless, Lilly’s share saw a decrease of 2%.
Overall, the S&P 500 concluded the day losing 50.39 points to settle at 5,982.72. The Dow Jones Industrial Average slumped by 299.29 to 42,215.80, and the Nasdaq composite dived by 180.12 to land at 19,521.09.
Simultaneously, the Federal Reserve initiated a two-day meeting concerning interest rates. A consensus among traders and economists suggests the Fed will likely maintain the current rates. Despite previous rate cuts at the previous year-end, the Fed remains cautious about reducing them further, focusing on assessing the long-term impacts of Trump’s tariffs on the economy and inflation. Presently, inflation remains near the Fed’s target of 2%.
Looking ahead, the release of the Fed’s latest economic forecasts on Wednesday, including interest rate projections for the coming years, is anticipated to be a significant market influencer.
In the bond sphere, the yield on the 10-year Treasury softened from 4.46% late Monday to 4.38% by Tuesday’s close.
Internationally, stock markets registered declines across Europe after mixed results in Asia. Tokyo’s Nikkei 225 index managed a 0.6% rise following the Bank of Japan’s decision to hold its key interest rate steady. Gradual tightening from near zero, alongside a reduction in Japanese government bond purchases, aligns with efforts to confront inflation.