United States benchmark averages extended declines on Tuesday (Wednesday AEST) as a global bond sell-off intensified and crude prices surged amid fading hopes for a near-term resolution to the U.S.-Israeli war with Iran.
The Dow Jones Industrial Average fell 419.0 points, or 0.8%, to 52,766.9, while the S&P 500 lost 54.7 points, or 0.7%, to 7,631.5. The Nasdaq Composite dropped 271.1 points, or 1%, to 26,099.8.
All three major U.S. stock indexes started September on a weak footing, closing sharply lower as escalating Middle East tensions pushed oil prices higher.
Global sovereign bond yields also climbed to multiyear highs as investors increased bets that central banks may need to accelerate interest rate hikes.
The U.S. launched another wave of airstrikes against Iranian targets near the Strait of Hormuz after Treasury Secretary Scott Bessent said Washington would probably announce new banking sanctions against Iran to "economically asphyxiate" Tehran's leadership. Iran warned it would seek to restrict oil exports from the Gulf.
The escalation pushed crude prices higher, adding to inflation concerns just days after Fed Chair Kevin Warsh said he would work to return price growth to the central bank's target.
Markets are now pricing in a 66.9% probability of a 25-basis-point Fed rate hike at the end of its September policy meeting, up from 39.6% a week earlier, according to the CME Group FedWatch Tool.
Meanwhile, the U.S. Labor Department's Job Openings and Labor Turnover (JOLTS) report pointed to a slowdown in labour-market turnover, while purchasing managers' index data indicated weakening factory activity.
Falling residential construction spending also highlighted pressure on the economy as businesses and consumers contend with elevated prices, supply constraints, tariffs and geopolitical uncertainty.
On the bond markets, 10-year and two-year Treasury yields rose 0.9% and 1.2%, respectively, to 4.796% and 4.4%.
