Dow falls 138 points as Iran tensions hit chip stocks, lift oil prices

US stocks closed lower on Monday as escalating tensions between the United States and Iran triggered a sharp rise in oil prices and renewed concerns over inflation, while a broad sell-off in semiconductor stocks added to pressure ahead of a busy week of corporate earnings and economic data.

The Dow Jones Industrial Average fell 138 points, or 0.26%, to close at 52,498.64.

The S&P 500 lost 0.79% to 7,515.34, while the Nasdaq Composite declined 1.55% to 25,873.18, with technology stocks leading the losses.

The market reaction followed President Donald Trump's announcement that the US would reinstate a blockade on Iranian shipping through the Strait of Hormuz and seek reimbursement of 20% on cargo moving through the strategic waterway.

The move came after renewed military exchanges between Washington and Tehran over the weekend, raising concerns about global energy supplies and geopolitical stability.

Oil surge fuels inflation concerns

Oil prices jumped after the latest developments in the Middle East, with US West Texas Intermediate crude rising 9.4% to more than $78 a barrel.

Brent crude, the international benchmark, climbed 9.6% to above $83 a barrel.

The sharp increase in crude prices revived concerns that higher energy costs could feed into inflation, complicating the Federal Reserve's policy outlook.

Markets are now pricing in at least one 25-basis-point interest-rate increase before the end of the year, according to LSEG data.

Investors are also preparing for several key economic releases this week, including June consumer price index (CPI), producer price index (PPI) and retail sales data, which could provide further insight into inflation trends and consumer spending.

Federal Reserve Chair Kevin Warsh is scheduled to testify before Congress this week, with lawmakers expected to question him about the inflationary impact of the US-Iran conflict and the central bank's policy path.

Chip stocks lead market lower

Semiconductor shares were among the biggest losers as investors continued to rotate out of the sector following SK Hynix's Nasdaq debut.

US-listed shares of SK Hynix dropped about 8% after surging more than 12% during their first trading session on Friday.

The weakness spread across the broader semiconductor industry, with Micron Technology falling about 5%, Sandisk losing 13%, Seagate Technology dropping 6%, Advanced Micro Devices declining 4%, and Intel falling 7%.

The Philadelphia Semiconductor Index significantly underperformed the broader market as investors reassessed valuations following the sector's strong artificial intelligence-driven rally over recent months.

Earnings season takes center stage

Investors are also turning their attention to the unofficial start of the second-quarter earnings season.

Major US banks, including JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup and Wells Fargo, are scheduled to report results this week.

Netflix, Johnson & Johnson and UnitedHealth are also due to release quarterly earnings.

According to LSEG, analysts expect S&P 500 companies to report second-quarter earnings growth of 23.7% from a year earlier, up from estimates at the beginning of April.

The combination of elevated earnings expectations, geopolitical uncertainty and inflation risks is expected to keep markets volatile in the days ahead.