U.S. stocks fall as oil climbs on Iran-Israel conflict, inflation outlook dampens sentiment

U.S. stocks extended their losses as trading wrapped up in New York on Tuesday, with renewed caution over the Iran-Israel conflict and the global outlook for inflation dampening investor sentiment. The market broader move came even as there were no decisive shifts in the battlefield dynamics; the Hormuz Strait remained blocked, and U.S. airstrikes on Iran continued, leaving markets without a clear catalyst for a sustained rally.

The Dow Jones Industrial Average closed down 119.38 points at 46,558.47, a 0.26% drop from the prior session. The S&P 500 finished 0.61% lower at 6,632.19, down 40.43 points, while the Nasdaq Composite fell 0.93% to 22,105.36, down 206.62 points. In markets where energy and geopolitical risk hinge on supply, the price of crude rose again, underscoring how the outlook for oil feeds into equity valuations.

Oil moved higher as conflict expectations persisted and the possibility of longer, costlier fighting weighed on markets. Brent crude for May delivery jumped nearly 3% to finish a little above $103 a barrel, marking the highest levels seen since the latter part of 2022. The leadership of global energy markets suggests tighter supply concerns could keep prices elevated even if near-term demand remains unsettled.

Investors also weighed macro data that painted a cooler picture for the U.S. economy. The Commerce Department reported that fourth-quarter real GDP advanced at an annualized rate of 0.7%, below earlier estimates and well short of the anticipated 1.4% mark. On the inflation front, the core personal consumption expenditures price index, which excludes food and energy, rose 0.4% month over month for a second straight month, while the overall PCE price index rose 0.3% month over month. Those readings reinforced concerns that inflation pressures remain sticky even as growth slows.

Within equities, the market breadth was mixed. Materials and technology shares declined more than 1% on the session, while even the biggest U.S. tech names faced downward pressure; Broadcom and Meta Platforms fell about 4%, and Adobe dropped more than 7% after a disappointing quarterly report and cloudy outlook. By contrast, the Philadelphia Semiconductor Index held up better, with Micron Technology rising more than 5% as investors rotated toward semi equities, while Taiwan Semiconductor (TSMC) and Intel also traded higher to help cushion overall losses.

Market expectations for Federal Reserve policy shifted only modestly. The CME’s FedWatch tool indicated the probability of keeping the federal funds rate unchanged through June at about 77.1%, down from roughly 79.3% the prior day, suggesting traders are still balancing concerns about inflation with signs of cooling growth. The CBOE Volatility Index, or VIX, edged lower to 27.19, signaling a degree of risk appetite moderation rather than outright fear.

The developments matter for U.S. readers because Washington relies on stable energy and supply chains for growth and inflation control. Escalation in the Iran conflict or disruptions around the Strait of Hormuz could push oil higher and complicate inflation dynamics at a time when the Federal Reserve is weighing its policy stance. Additionally, stock-market reactions to inflation data and geopolitical risk can influence capital flows, technology sector valuations, and the timing of future monetary policy moves, all of which affect borrowing costs, corporate investment, and market sentiment in the United States. The global response, including European diplomacy and potential U.S. military considerations, underscores how geopolitical risk remains a key variable for U.S. markets, policymakers, and multinational supply chains.