Wall Street stocks retreated from record highs on Wednesday (Thursday AEST) as escalating tensions in the Middle East and a sharp rise in oil prices reignited inflation concerns, prompting investors to lock in profits after a strong rally.
The Dow Jones Industrial Average fell 620.7 points, or 1.2%, to 50,687.1. The S&P 500 declined 56.1 points, or 0.7%, to 7,553.7, while the Nasdaq Composite dropped 239.9 points, or 0.9%, to 26,854.0.
Crude oil prices climbed after the United States and Iran launched fresh strikes, heightening concerns about energy supply disruptions and the broader economic impact of renewed conflict in the region.
President Donald Trump said on Wednesday that Iran had agreed not to pursue nuclear weapons, although he cautioned that the situation remained uncertain.
"They can change their mind," Trump said.
West Texas Intermediate crude futures rose 2.4% to settle at US$96.02 per barrel, while Brent crude gained 1.9% to finish at US$97.81 per barrel.
Semiconductor stocks outperformed, with Marvell Technology up 3.7%, Intel gaining 4.4%, Qualcomm up 3.8%, and Sandisk advancing 6.7%.
However, most of the so-called Magnificent Seven technology stocks ended lower. Apple fell 1.6%, Microsoft dropped 3.2%, Alphabet slipped 0.8%, while Meta Platforms bucked the trend with a 4.2% gain.
Broadcom shares fell 4.5% in after-hours trading following the release of its latest financial results.
Growing inflation concerns were also reflected in interest rate expectations. According to the CME Group FedWatch Tool, financial markets are now pricing in a 41.7% probability of a 25 basis point (bps) hike and a 14.3% chance of a 50bp hike at the conclusion of the central bank's December meeting.
Federal Reserve officials delivered mixed messages on the policy outlook.
New York Federal Reserve President John Williams reiterated that the central bank does not need to adjust interest rates despite persistent upside inflation risks, saying monetary policy remains "in the right place".
In contrast, Dallas Federal Reserve President Lorie Logan said she believes policy is currently "neutral or perhaps even a bit loose" relative to what is required to bring inflation back under control.
Economic data released during the session painted a mixed picture. Indicators suggested the labour market remained stable and the services sector continued to expand.
However, elevated input costs and softer corporate spending intentions pointed to growing caution among businesses as energy prices rise and geopolitical uncertainty intensifies.
GameStop surged 6.0% after the videogame retailer reported higher quarterly revenue and announced a US$2 billion share buyback programme.
Meanwhile, investor attention remained focused on Elon Musk's planned initial public offering, which Reuters reported is expected to be priced at $135 per share and raise a record $75 billion, according to a source familiar with the matter.
Bond yields also moved higher as investors reassessed the outlook for inflation and monetary policy. The benchmark 10-year U.S. Treasury yield rose 0.9% to 4.4935%, while the two-year Treasury yield increased 1.0% to 4.084%.
