The US stock market saw its losses deepen by midday on Wednesday, with chip stocks continuing their recent downtrend. Oil prices moved higher after President Donald Trump suggested negotiations with Iran were taking "too long" and threatened further action. Meanwhile, US consumer price inflation for May hit a three-year high.
The Dow Jones Industrial Average fell 569.10 points, or 1.12%, to 50,303.01. The Nasdaq Composite dropped 263.04 points, or 1.02%, to 25,415.79. The S&P 500 index declined 58.20 points, or 0.79%, to 7,328.45.
Market sentiment was weighed down by comments from President Trump on Wednesday morning. He implied that talks with Iran were dragging on and warned of additional measures. In a social media post, he stated that Iran had "taken too long to negotiate a deal that should have been very good for them, and now they must pay!!!"
His post further claimed that Iran's military was "a complete and total mess," with much of its force, such as the navy and air force, "no longer even existent—they have been totally defeated. Iran talks, but does nothing."
Following these threats, oil prices advanced, with West Texas Intermediate crude futures recently up more than 1%. Tensions in the Middle East escalated again on Tuesday evening after US Central Command stated that American forces had conducted strikes against Iran "in response to the downing of a US Army Apache helicopter" on Monday. Trump had previously accused Iran of shooting down the helicopter, which was patrolling over the Strait of Hormuz.
Jedd Ellerbroek, a portfolio manager at Argent Capital Management, commented on the significant implications of a US war with Iran. He noted that either investors will be proven right that there is little to worry about, with Trump managing the situation, reaching a deal, and reopening the Strait; or, if that doesn't happen, it feels like oil prices would have to rise substantially. He added that in this investment environment, it's impossible to feel comfortable.
Chip stocks faced renewed pressure on Wednesday, also dragging down 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 finishing down 10% on Friday. The group saw a modest rebound on Monday before selling resumed on Tuesday.
Pressure on chip stocks comes ahead of the historic initial public offering for SpaceX on Friday. Some traders believe investors, particularly retail traders, are reducing exposure to some of the popular chip stock winners to make room for what could be the largest IPO ever in 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.
Stocks pared some of their earlier losses after data for the core Consumer Price Index for May, which excludes food and energy, came in slightly below expectations. The core CPI rose 0.2% month-over-month, below the anticipated 0.3% increase. Year-over-year, core CPI increased by 2.9%, matching expectations but still above the Federal Reserve's 2% inflation target.
The overall annual inflation rate, which includes all prices, climbed above 4% for the first time in three years.
On Tuesday, chip stocks had pulled the S&P 500 and Nasdaq lower, while the blue-chip Dow managed to close higher. Tuesday's decline extended a pullback that began last week, following several weeks of frenzied buying driven by enthusiasm around artificial intelligence-related themes.
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