U.S. stocks significantly pared their losses during Tuesday's late trading session. Major indices attempted a dramatic rebound for the second consecutive day.
The Dow Jones Industrial Average fell by 272.42 points, or 0.56%, closing at 48,632.36. The Nasdaq Composite dropped 212.47 points, or 0.93%, to finish at 22,536.39. The S&P 500 index declined by 53.92 points, or 0.78%, settling at 6,827.70. Earlier on Tuesday, the Dow had been down more than 1,270 points, hitting an intraday low of 47,626.85. Among the 11 sectors of the S&P 500, only the financial sector managed to close higher, while all others ended in negative territory. The materials and consumer discretionary sectors experienced the steepest declines, driven by market concerns that rising oil prices and increasing borrowing costs could negatively impact the U.S. economy. Several major technology stocks that led the intraday rally on Monday, such as Nvidia, moved lower on Tuesday. U.S. memory chip stocks also faced pressure, anticipated to follow the significant downturn seen in South Korean memory chip shares. Additionally, a prominent British financial media outlet reported that Blackstone's private credit fund experienced a net outflow of $1.7 billion in the first quarter, with its stock price falling 4%. Safe havens were scarce on Tuesday, as gold prices also fell sharply following a significant surge on Monday. Wall Street's fear gauge, the CBOE Volatility Index, jumped to its highest level since November. The global benchmark Brent crude surged 6% on Tuesday, surpassing $82 per barrel. This followed a 6% gain for the contract on Monday. U.S. West Texas Intermediate crude also rose 6% on Tuesday, reaching above $75 per barrel, after a similar 6% increase in the previous trading session. Rising energy prices pushed Treasury yields higher due to fears that this could lead to a resurgence of inflation, at a time when U.S. investors are hopeful for further Federal Reserve interest rate cuts to stimulate the economy. Yields subsequently gave back some of their gains, and oil prices retreated from their daily highs, providing some support to the major indices. Adding to market unease, a warning was issued that a conflict could persist for more than four weeks. Reports indicated that a commander stated the Strait of Hormuz—the world's most critical oil shipping route—has been closed, with threats to destroy any vessels attempting passage, further deepening trade concerns. As the conflict entered its fourth day, other signs emerged suggesting an escalation: first, a drone attack targeted a U.S. facility in the capital of a key Middle Eastern country, with increased attacks from another nation. Personnel were ordered to evacuate from several neighboring countries. Second, missile and drone attacks were launched by an Iran-backed group against a major city. Growing concerns are focused on how long the air defense systems of Gulf nations, such as the UAE, can withstand intensive missile and drone attacks. On Monday, U.S. stocks staged a strong rebound, with the S&P 500 and Nasdaq Composite recovering from steep losses to close with modest gains. The Dow also finished well above its intraday low. Investors, drawing on historical Wall Street patterns around geopolitical conflicts, bought the dip based on the expectation that the conflict would be resolved quickly without harming the economy. A market structure head at Liquidnet stated, "I do believe the prospect of a potentially prolonged mission will weigh on the market in the coming weeks," citing the possibility of persistently high oil prices and the need for investors to navigate future shifts in inflation, yields, and rate cut expectations. He continued, "Historically, the U.S. market has been able to look past such geopolitical shocks, but then again, the Strait of Hormuz is now closed." He added that, given approximately 20% of global oil consumption transits through the strait, its continued closure "cannot be ignored."
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