U.S. stocks fell on Tuesday as escalating tensions in the Middle East dampened investor optimism following a strong quarter.
The Dow Jones Industrial Average declined by 173.2 points, or 0.4%, closing at 42,157. The S&P 500 slipped 0.9% to finish at 5,708.8, while the tech-heavy Nasdaq Composite dropped 1.5%, ending the session at 17,910.4.
Oil prices surged, with West Texas Intermediate crude spiking after reports that the Israel Defense Forces accused Iran of firing missiles at Israel.
The CBOE Volatility Index (VIX), commonly known as Wall Street’s "fear gauge", climbed above 20 at its peak, reflecting growing concerns among traders.
However, oil prices later pulled back from their highs, and stocks recovered some of their earlier losses as investors hoped that the damage from the attack and any subsequent Israeli retaliation would be limited.
Despite some recovery, over 60% of S&P 500 stocks closed lower, signaling widespread market pressure.
However, the energy sector defied the broader trend, rising more than 2% following the news from the Middle East.
Technology stocks bore the brunt of the day’s losses, driving the Nasdaq’s underperformance. Tesla, Nvidia, and Apple all ended lower. Facebook parent Meta Platforms, however, bucked the trend by reaching an all-time intraday high. Small-cap stocks also suffered, with the Russell 2000 index sliding by 1.5%.
Investors were also keeping an eye on the ongoing strike by the International Longshoremen's Association on the East and Gulf coasts. While the immediate impact on consumers is expected to be limited, the strike could cost the US economy hundreds of millions of dollars.
Despite Tuesday's losses, all three major indices ended September with gains, marking the first positive September for the S&P 500 since 2019. The S&P 500, Dow, and Nasdaq also finished the third quarter in positive territory.
Stocks had advanced on Monday, even after Federal Reserve Chair Jerome Powell indicated that the central bank is "not on any preset course" regarding future rate cuts. Powell stated that two more quarter-point rate cuts could be expected this year if the economy performs as anticipated.
Looking ahead, investors are focusing on the upcoming release of September’s nonfarm payrolls report on Friday, which could act as a key driver for market direction.
In the bond market, the 10-year and 2-year Treasury yields were at 3.733% and 3.606%, respectively.