U.S. stocks closed lower on Tuesday, but major indices staged a dramatic recovery attempt for the second consecutive day, finishing well above their session lows. The market significantly pared losses after President Trump announced that the U.S. Navy would escort oil tankers through the Strait of Hormuz.
The Dow Jones Industrial Average fell 403.51 points, or 0.83%, to close at 48,501.27. The Nasdaq Composite dropped 232.17 points, or 1.02%, to 22,516.69. The S&P 500 declined 64.99 points, or 0.94%, to 6,816.63. Stocks opened sharply lower on Tuesday, with the Dow down more than 1,277 points at its intraday low. However, Trump's comments late in the session spurred a significant rebound. On Tuesday afternoon, Trump stated in a post on Truth Social, "In any event, the United States will ensure the free flow of energy to the world. The American economic and military strength is the most powerful on the planet – more action is coming." Following this announcement, global benchmark Brent crude retreated from its daily highs. Brent crude futures rose $3.66, or 4.71%, to settle at $81.40 per barrel. West Texas Intermediate crude for April delivery gained $3.33, or 4.67%, to settle at $74.56 per barrel. Both oil benchmarks had been up more than 9% earlier in the day. The initial surge in energy prices pushed Treasury yields higher due to concerns it could reignite inflation, at a time when U.S. investors are hoping for further Federal Reserve interest rate cuts to stimulate the economy. However, yields subsequently retreated along with oil prices. Within the S&P 500, all 11 sectors closed lower except for Financials. The Materials and Consumer Discretionary sectors were the worst performers, weighed down by concerns that rising oil prices and borrowing costs could negatively impact them. Several major technology stocks that led Monday's rebound, such as Nvidia, moved lower on Tuesday. U.S. memory chip stocks also faced pressure, expected to follow significant declines in South Korean memory chip shares. Additionally, shares of Blackstone fell 2% following a report that its private credit fund experienced net outflows of $1.7 billion in the first quarter. There were few safe havens on Tuesday, with gold prices also falling sharply after a significant gain on Monday. The CBOE Volatility Index, Wall Street's fear gauge, jumped to its highest level since November. Adding to market unease, Trump warned that the conflict could last for more than four weeks. Reports that a commander of Iran's Revolutionary Guard stated the Strait of Hormuz—the world's most critical oil transit chokepoint—had been closed and that Iran would destroy any vessels attempting to pass through further deepened trade concerns. As the conflict entered its fourth day, other signs indicated an escalation: First, a drone attack targeted the U.S. residential compound in Riyadh, Saudi Arabia, as Iran intensified its attacks on the country. The State Department ordered personnel evacuations from Bahrain, Iraq, and Jordan. Second, Tehran-backed Hezbollah launched missile and drone attacks on Tel Aviv. Growing concerns emerged about how long Gulf states like the UAE could withstand dense attacks from Iranian missiles and drones with their air defense systems. On Monday, stocks staged a strong rebound, with the S&P 500 and Nasdaq Composite erasing steep losses to close slightly higher. The Dow also finished well above its intraday low. Investors, drawing on Wall Street's historical experience with geopolitical conflicts, bought the dip based on the expectation that the conflict would be resolved quickly without impacting the economy. "I do think the idea that the mission could last longer will weigh on markets over the coming weeks," said Jeffrey O'Connor, Head of US Market Structure at Liquidnet. He cited the potential for oil prices to remain elevated and the need for investors to navigate future changes in inflation, yields, and rate-cut expectations. "Historically, U.S. markets have been able to look past geopolitical shocks like this, but then again, the Strait of Hormuz is now closed," O'Connor continued. He added that a sustained closure "cannot be ignored," given that approximately 20% of global oil consumption transits through the strait.
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