After Trump sent a stronger signal on Iran, Wall Street's risk appetite noticeably cooled. U.S. stock indices weakened intraday, while energy prices rose simultaneously, as investors began reassessing the cascading impact of escalating Middle East tensions on inflation and monetary policy.
U.S. stocks widen their losses during trading hours.
The Dow Jones Industrial Average fell over 650 points, or about 1.3%; the S&P 500 declined 0.9%; and the Nasdaq Composite dropped 1.19%. Reports noted that major indices hit intraday lows, triggered by Trump’s statement that negotiations with Iran were progressing too slowly and his warning that the U.S. could launch additional military strikes.
Trump stated that Iran "took too long to negotiate" and therefore "must pay a price." This statement contrasts with his earlier, more moderate signals, which had led markets to anticipate a possible easing arrangement between the U.S. and Iran.
Oil prices rise above $90 per barrel
Geopolitical tensions quickly spilled over into energy markets. WTI crude oil futures rose nearly 3%, surpassing $90 per barrel. Traders have increased the geopolitical risk premium, refocusing market attention on the Strait of Hormuz, a critical global oil transit route.
Recent military tensions between the U.S. and Iran have sparked concerns among external observers about global energy supplies. Market participants believe that if the conflict persists, crude oil supplies could tighten further, exerting new upward pressure on inflation. Jed Ellerbroek, portfolio manager at Argent Capital Management, stated that the situation in Iran has a significant impact on markets, and investors are currently assessing whether diplomatic efforts can still curb further oil price increases.
Chip stocks continue to pull back.
In the technology sector, Micron Technology, AMD, and Broadcom all declined. The report suggests that this recent pullback in chip stocks follows a significant prior rally, during which the sector benefited for months from expectations of increased investment in AI infrastructure.
Some analysts believe investors are taking profits at elevated levels ahead of SpaceX’s IPO later this week. Others view this as a normal consolidation following a rapid rally. Even with the recent pullback, semiconductor stocks remain among the top performers for the year.
Inflation data failed to shift sentiment
Economic data provided a brief respite for markets. U.S. core consumer inflation rose 0.2% month-over-month in May, below the 0.3% expected by economists, and increased 2.9% year-over-year, in line with expectations. However, the report also noted that overall U.S. inflation rose to 4.2%, the highest level since 2023.
Milder core inflation data briefly helped narrow stock market losses, but overall inflation rose back above 4%, raising concerns that rising energy prices could complicate the Fed’s policy outlook.
The market continues to focus on the Iran negotiations.
Investors continue to monitor diplomatic developments between Washington and Tehran. Although Trump continues to issue military threats, negotiations have not been completely halted. Reports indicate that regional mediators are still working to narrow the differences between the two sides.
Amid uncertain geopolitical and policy prospects, the market remains cautious about increasing risk exposure. Rising oil prices, a pullback in chip stocks, and escalating tensions in the Middle East suggest that market volatility may remain elevated in the short term.