Dow drops 620 points as oil surge and Iran tensions hit stocks

US stocks closed lower on Wednesday as rising oil prices, climbing Treasury yields, and renewed tensions in the Middle East weighed on investor sentiment, ending the S&P 500's nine-session winning streak.

The Dow Jones Industrial Average fell 620.72 points, or 1.21%, to 50,687.07.

The S&P 500 declined 0.74% to 7,553.68, while the Nasdaq Composite lost 0.89% to close at 26,853.98.

The retreat came after a fresh escalation in the conflict involving the United States and Iran, which pushed energy prices higher and reignited concerns that inflation could remain elevated for longer, complicating the Federal Reserve's policy outlook.

Oil prices and geopolitical risks weigh on markets

Crude oil prices climbed after both the US and Iran launched new strikes across the region.

West Texas Intermediate crude futures rose 2.41% to settle at $96.02 per barrel, while Brent crude gained 1.89% to end the session at $97.81 per barrel.

The latest escalation followed reports that US Central Command intercepted Iranian ballistic missiles and drones and carried out "self-defense strikes" on Qeshm Island.

Earlier, Kuwait's army said its air defense systems were "intercepting hostile targets."

President Donald Trump also commented on the ongoing situation, saying Iran had agreed not to possess nuclear weapons but warned that "they can change their mind." 

Investors increasingly focused on the possibility that prolonged disruption in the Middle East, particularly around the Strait of Hormuz, could drive energy prices even higher.

Treasury yields climb as investors reassess Fed outlook

The rise in oil prices was accompanied by a move higher in Treasury yields, with the 10-year Treasury yield approaching 4.5% and the 30-year yield nearing 5%.

Stronger-than-expected labor market data and continued expansion in the services sector also contributed to expectations that interest rates could remain elevated.

According to CME FedWatch data, markets are now pricing in more than a 40% probability of a Federal Reserve rate hike by the December meeting, up sharply from roughly 9% a month earlier.

New York Federal Reserve President John Williams said monetary policy remains "in the right place," despite ongoing inflation risks.

The Federal Reserve's Beige Book also indicated that economic activity had strengthened in recent weeks, while higher energy costs linked to the conflict were having widespread effects across businesses.

Technology and alternative asset managers decline

Technology shares added to the market's weakness, with several major artificial intelligence-related stocks moving lower.

Nvidia and Dell Technologies both fell more than 3%, Oracle dropped over 5%, and Microsoft also declined around 3%.

Despite the broader weakness among large-cap technology stocks, semiconductor shares showed resilience.

Marvell Technology, Intel, Qualcomm, and Sandisk outperformed during the session, suggesting that investor enthusiasm for AI infrastructure remains intact.

Alternative asset managers also came under pressure after Switzerland-based Partners Group announced it was capping withdrawals from an $8.6 billion private equity fund.

The development weighed on the broader sector, with shares of Blackstone, KKR, Blue Owl Capital, and Ares Management all posting declines.

Meanwhile, GameStop bucked the broader market trend after reporting higher quarterly revenue and announcing a new $2 billion share repurchase program.