U.S. stocks closed sharply lower on Tuesday, with the Dow Jones Industrial Average shedding 617 points, or 1.16%, to 52,797.10. The S&P 500 fell 0.58% to 7,673.94, while the Nasdaq Composite declined 0.31% to 26,423.69. Markets were closed Monday for the Labor Day holiday, so Tuesday's session reflected the first trading day of the week.
Oil rally intensifies on Middle East tensions
Crude prices extended their advance for a sixth straight session, with West Texas Intermediate futures climbing and Brent trading near $98 a barrel. The latest surge followed attacks by Iran-backed Houthi forces on Saudi energy infrastructure and cities, while shipping through the Strait of Hormuz has slowed, raising concerns about potential supply disruptions.
Higher energy costs are a key worry for investors because they can feed into broader inflation, complicating the Federal Reserve's policy path. The S&P 500 energy sector gained ground, with Marathon Petroleum and Occidental Petroleum among the advancers.
Inflation data and Fed rate expectations in focus
Investors are now looking ahead to the August producer price index and consumer price index, due Thursday and Friday, respectively. These reports will provide fresh clues on inflation ahead of the Fed's September 15-16 meeting. According to the CME FedWatch tool, fed funds futures are pricing in about a 60% probability of a 25-basis-point rate hike at that meeting.
Rate hike bets have strengthened following a stronger-than-expected August jobs report, which showed employers added more jobs than anticipated. The rise in oil prices adds another variable: if energy costs push inflation higher, investors may increase expectations for tighter monetary policy.
The benchmark 10-year Treasury yield recently hit its highest level since November 2023, while the two-year yield climbed to its highest since January 2025, making stocks relatively less attractive compared with risk-free government securities.
Chip stocks shine, software and crypto stumble
Semiconductor names were a bright spot. The VanEck Semiconductor ETF rose 1.5%, with Intel and Advanced Micro Devices jumping more than 9% and 6%, respectively. Broadcom added 3%. Intel and Qualcomm benefited after Qualcomm announced a deal with Amazon to develop custom AI chips for data centers.
In contrast, software stocks remained under pressure. Salesforce, ServiceNow, and Intuit declined, and 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 slipped 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, with Coinbase and Strategy both moving lower.
Trade tensions and broader risks
Investors are also dealing with renewed U.S.-Canada trade tensions, as Canadian retaliatory tariffs on about $20 billion of U.S. goods took effect Tuesday. The combination of higher oil prices, stronger rate-hike expectations, and geopolitical and trade risks left the broader market under pressure.
For more on how oil and inflation data are affecting markets, see the latest market update and futures reaction to oil near $100.
This article is for informational purposes only and does not constitute financial advice.
