U.S. stocks continued their decline during Wednesday morning trading, with the Dow Jones Industrial Average dropping more than 600 points. U.S. Treasury yields moved higher as the market awaited the Federal Reserve's closely watched interest rate decision. Rising oil prices amid heightened tensions in the Middle East added further pressure, while numerous companies continued to release their quarterly earnings reports.
The Dow fell 621.42 points, or 1.18%, to 52,125.90. The Nasdaq Composite lost 117.23 points, or 0.47%, to 24,759.69. The S&P 500 declined 29.15 points, or 0.39%, to 7,399.63.
U.S. Treasury yields generally rose on Wednesday. The market is awaiting the Federal Reserve's rate decision and a press conference from Chairman Kevin Warsh, while a sharp jump in international oil prices has also added to bond market volatility. The yield on the 10-year Treasury note, a key benchmark for U.S. government borrowing costs, rose 2 basis points to 4.624%. The 2-year Treasury yield, more sensitive to short-term policy rate expectations, gained 3 basis points to 4.308%. The long-term 30-year Treasury yield was roughly flat at 5.10%. (Note: Bond yields move inversely to prices.)
Investors are focused on the Fed's interest rate decision on Wednesday afternoon, followed by Chairman Kevin Warsh's press conference. According to the CME FedWatch Tool, traders in federal funds futures see nearly a 70% probability that the central bank will hold rates steady at the current target range of 3.5% to 3.75%. The odds of a 25-basis-point hike are around 30%. However, based on the same CME FedWatch data, the market has priced in a 76% chance of a rate hike in September.
Although recent inflation data has shown some cooling, rising energy prices and renewed tensions between the U.S. and Iran have made the decision-making environment for Fed Chair Warsh more complex. The Fed has struggled with inflation running above its 2% target since 2021. However, the U.S. Consumer Price Index (CPI), a broad measure of inflation, unexpectedly fell in June, bringing the annual rate down to 3.5%. In the weeks since, oil prices have surged again due to an escalation in the Middle East conflict.
Michael Gabon, Chief U.S. Economist at Morgan Stanley, stated that the slowdown in June employment growth and the softer inflation data make the case for a July rate hike less compelling than it was in June. Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack have both publicly supported a rate hike to push inflation back toward its target. Krishna Guha, Vice Chairman at Evercore ISI, noted, "It would seem strange to hike immediately after the June inflation improvement, but given that Warsh refuses to clarify his strategic framework, we cannot discount the probability of a hike entirely."
Since succeeding as Fed Chair in May, Warsh has favored reducing forward guidance, arguing that policy should be entirely data-dependent. Analysts suggest that if rates are held steady this time, the September meeting will be a critical policy window, by which time the Fed will have more inflation and employment data.
Energy prices spiked again on Wednesday after U.S. President Donald Trump said he would "hit Iran hard" in response to an attack. U.S. West Texas Intermediate crude futures rose 6.9% to $89.88 per barrel. The U.S. Central Command posted on social media that units of the Islamic Revolutionary Guard Corps "launched several ballistic missiles in an apparent attempt to launch a surprise attack on U.S. forces in the Middle East." The command stated that the missiles were successfully intercepted.
"We still believe the market is overly focused on inflation risks and paying insufficient attention to the economic consequences of further tightening," said Julia Herman, Global Market Strategist at New York Life Investments. "A more hawkish communication stance could test the current narrow market leadership more than the broader market."
The semiconductor sector continued to face headwinds, with the iShares Semiconductor ETF (SOXX) edging lower. Chip stocks have fallen for four consecutive trading days, losing nearly 7% this week, driven by growing anxiety over the returns from massive artificial intelligence spending and concerns about increased competitive pressure from China.
Shares of Procter & Gamble fell more than 2% after the consumer goods company missed revenue estimates for its latest quarter. Ford Motor shares jumped 4.9% after the automaker beat earnings expectations and raised its 2026 outlook. Meanwhile, Visa shares slipped about 1% pre-market after the payments giant issued disappointing guidance.
Investors have just endured another mixed trading session. On Tuesday, the Dow Jones surged over 500 points, marking its third consecutive gain as a recent pullback in oil prices provided upward momentum. However, the Nasdaq Composite fell for a fifth straight session, weighed down by the persistent weakness in chip stocks.
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