US stocks continued their decline into Wednesday's late trading session, with the Dow Jones Industrial Average dropping more than 700 points.
Chip stocks extended their recent losing streak. Crude oil prices moved higher after President Trump hinted that talks with Iran were taking "too long" and threatened further action. The US Consumer Price Index for May rose 4.2% year-over-year, hitting a three-year high.
The Dow fell by 736.74 points, or 1.45%, to close at 50,135.37. The Nasdaq Composite dropped 399.62 points, or 1.56%, to 25,279.20. The S&P 500 index declined by 90.95 points, or 1.23%, finishing at 7,295.70.
The market downturn came after President Donald Trump suggested on Wednesday morning that negotiations with Iran were taking "too long" and threatened additional measures.
In a social media post, he stated that Iran "has taken too long to negotiate a deal that should have been extremely good for them, and now they must pay the price!!!"
The post also claimed, "Iran's military is a total and complete mess, much of their military, like their Navy and Air Force, doesn't even exist anymore – they've been completely defeated. Iran talks but doesn't act."
Following Trump's threats, oil prices climbed, with West Texas Intermediate crude futures rising more than 1% in recent trading.
Tensions in the Middle East escalated again on Tuesday evening. The US Central Command stated that US forces conducted a strike against Iran "in response to the downing of a US Army Apache helicopter on Monday." Trump had previously blamed Iran for shooting down the helicopter, which he said was patrolling over the Strait of Hormuz.
Jed Ellerbrock, a portfolio manager at Argent Capital Management, commented on the significant impact of a potential US war with Iran. He noted that either investors will be proven right that there is little to worry about, with Trump handling the situation and reaching a deal with Iran to reopen the strait, or, if that is not the case, it feels like oil prices will have to rise substantially. He added that in this investment environment, it is impossible to feel comfortable.
Market Drivers and Sector Performance
Chip stocks faced renewed pressure on Wednesday, also weighing on the broader market. Shares of Micron Technology, Advanced Micro Devices, and Broadcom moved lower, marking their fourth decline in five trading sessions. The semiconductor sector was hit hard late last week, with the iShares Semiconductor ETF ultimately falling 10% on Friday. The sector saw a modest rebound on Monday before selling resumed on Tuesday.
Chip stocks are under pressure ahead of SpaceX's initial public offering on Friday. Some traders believe that investors, particularly retail investors, are reducing holdings in some of the popular, high-flying chip stocks to make room for what could be the largest IPO ever for their portfolios. Others view the weakness simply as profit-taking following a rapid price ascent. The chip ETF is still up more than 87% year-to-date.
Inflation Data Provides Brief Respite
Stocks pared some losses from their lows after data for May's core Consumer Price Index, which excludes food and energy prices, came in slightly below expectations. According to the US Bureau of Labor Statistics, the core CPI increased 0.2% month-over-month, below the 0.3% forecast. Compared to a year ago, core CPI rose 2.9% year-over-year, matching expectations but still above the Federal Reserve's 2% inflation target.
The headline annual inflation rate, which includes all prices, climbed above 4% for the first time in three years.
On Tuesday, chip stocks dragged down the S&P 500 and Nasdaq, while the blue-chip Dow Jones Industrial Average managed to close higher. Tuesday's decline was a continuation of a pullback that began last week, following several weeks of frenzied buying driven by enthusiasm around artificial intelligence-related themes.
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