US stocks were trading lower on Wednesday afternoon, with the Dow Jones Industrial Average falling more than 880 points. The decline comes as US Treasury yields edged higher, and markets awaited the Federal Reserve's highly anticipated interest rate decision, which was set to be announced later in the day. Rising oil prices, driven by heightened Middle East tensions, and a flurry of corporate earnings reports also influenced the market's direction.
The Dow dropped 882.42 points, or 1.67%, to 51,864.90. The Nasdaq Composite fell 323.052 points, or 1.30%, to 24,553.86, while the S&P 500 index declined 72.01 points, or 0.97%, to 7,356.77.
US Treasury yields were broadly higher on Wednesday. The market was on edge ahead of the Federal Reserve's interest rate decision and the subsequent press conference by Fed Chair Kevin Walsh. A sharp jump in international oil prices also added to the volatility in the bond market. The yield on the 10-year Treasury note, a key benchmark for government borrowing costs, rose 2 basis points to 4.624%. The 2-year Treasury yield, which is more sensitive to short-term interest rate policy, increased 3 basis points to 4.308%. The 30-year Treasury bond yield was largely unchanged at 5.10%. (Note: Bond yields move inversely to prices.)
Investors were looking ahead to the Federal Reserve's interest rate decision on Wednesday afternoon, followed by Chair Kevin Walsh's press conference. According to the CME's FedWatch Tool, traders in federal funds futures see a nearly 70% probability that the central bank will hold rates steady at their current target range of 3.5% to 3.75%. The probability of a 25-basis-point rate hike was estimated at around 30%. However, FedWatch data also showed that the market has priced in a 76% chance of a rate hike in September. While recent inflation data has shown signs of cooling, higher energy prices and renewed US-Iran tensions have made the decision-making environment for Fed Chair Walsh more complex.
The Fed has been grappling with an inflation rate that has remained above its 2% target since 2021. However, the US Consumer Price Index (CPI), a broad measure of inflation, unexpectedly declined in June, bringing the annual inflation rate down to 3.5%. But in the weeks following that report, oil prices have surged again due to the escalating conflict in the Middle East. Michael Gapen, Chief US Economist at Morgan Stanley, said that the slowdown in job growth in June and the softer inflation data have made 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 be strange to raise rates immediately after the improvement in June's inflation data, but given that Walsh has refused to clarify his strategy framework, we cannot rule out a rate hike too completely."
Since taking over as Fed Chair in May, Walsh has tended to reduce forward guidance, arguing that policy should be entirely dependent on incoming data. Analysts believe that if the Fed holds rates steady this time, the September meeting will be a key policy window, by which time the Fed will have more data on inflation and employment. Energy prices surged again on Wednesday after US President Donald Trump said he would "hit hard" against Iran in response to an attack. US West Texas Intermediate crude oil futures rose 6.9% to $89.88 per barrel. The US Central Command posted on social media that the Islamic Revolutionary Guard Corps "fired multiple ballistic missiles in an attempt to launch a surprise attack on US forces in the Middle East." The US Central Command stated that the missiles were successfully intercepted.
"We still believe the market is overly focused on inflation risks and underappreciating the economic consequences of further tightening," said Julia Herman, Global Market Strategist at New York Life Investments. "A more hawkish communication stance could challenge the market's narrow leadership more than the broader market as a whole." The semiconductor sector continued to face pressure, with the iShares Semiconductor ETF (SOXX) edging lower. Chip stocks have fallen for four consecutive trading days, with a decline of nearly 7% so far this week, driven by growing anxiety over the returns on massive artificial intelligence spending and increasing concerns about competition from China. Shares of Procter & Gamble fell more than 2% after the consumer goods company reported quarterly revenue that missed expectations. Ford Motor shares jumped 4.9% after the automaker beat earnings estimates and raised its outlook for 2026. In contrast, Visa shares slipped about 1% in pre-market trading after the payments giant issued disappointing guidance.
Investors had just experienced another mixed trading session. On Tuesday, the Dow Jones Industrial Average surged more than 500 points, marking its third consecutive daily gain, driven by a recent pullback in oil prices. However, the Nasdaq Composite Index fell for a fifth straight day, weighed down by the ongoing slump in chip stocks.
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