Wall Street stocks fell on Tuesday as renewed tensions in the Middle East pushed oil prices higher, while investors turned their attention to inflation data that could influence the Federal Reserve’s interest-rate decision next week.
The Dow Jones Industrial Average dropped 617 points, or 1.16%, to 52,797.10, while the S&P 500 fell 0.58% to 7,673.94.
The Nasdaq Composite declined 0.31% to 26,423.69. US markets were closed Monday for the Labor Day holiday.
Oil prices rise as Middle East tensions intensify
Oil prices continued to climb as renewed US-Iran hostilities raised concerns about disruptions to global energy supplies.
West Texas Intermediate crude futures rose for a sixth consecutive session, while Brent crude traded around $98 a barrel.
The latest gains followed attacks by Iran-backed Houthis in Yemen on Saudi energy facilities and cities.
Shipping traffic through the Strait of Hormuz has also slowed, adding to concerns about the potential for prolonged disruptions to oil flows.
Higher energy prices have become an important concern for investors because they could add to inflationary pressures.
The increase also pushed Treasury yields higher, making stocks relatively less attractive compared with risk-free government securities.
The S&P 500 energy index gained during the session, with Marathon Petroleum and Occidental Petroleum among the stocks advancing.
Inflation data could shape Fed rate outlook
Investors are awaiting the US producer price index and consumer price index for August, due Thursday and Friday, respectively.
The reports are expected to provide further clues about the direction of inflation before the Federal Reserve’s September 15-16 meeting.
Fed funds futures were pricing in about a 60% probability of a 25-basis-point rate hike at the meeting, according to the CME FedWatch tool.
Expectations for higher rates have strengthened following a stronger-than-expected August employment report, which showed employers added more jobs than economists had anticipated.
The rise in oil prices has added another variable to the outlook. If higher energy costs feed into broader inflation, investors could increase expectations for tighter monetary policy.
The benchmark 10-year Treasury yield recently reached its highest level since November 2023, while the two-year yield climbed to its highest level since January 2025.
Chip stocks gain while software and crypto fall
Semiconductor stocks were among the brighter areas of the market. The VanEck Semiconductor ETF gained 1.5%, while Intel and Advanced Micro Devices rose more than 9% and 6%, respectively. Broadcom also gained 3%.
Intel and Qualcomm benefited after Qualcomm announced a deal with Amazon to develop custom artificial intelligence chips for data centers.
In contrast, software stocks remained under pressure.
Salesforce, ServiceNow and Intuit declined, while the S&P 500 software and services index fell for a second consecutive session. OpenAI’s launch of its latest model has renewed concerns about potential competition for some software businesses.
Apple shares also fell ahead of an event where the company is expected to unveil its latest smartphone.
Cryptocurrency-related stocks declined as Bitcoin retreated from the $80,000 level. Coinbase and Strategy both moved lower.
Investors are also dealing with renewed US-Canada trade tensions, with Canadian retaliatory tariffs on about $20 billion of US goods taking effect Tuesday.
The combination of higher oil prices, stronger rate-hike expectations and geopolitical and trade risks left the broader market under pressure.