The S&P 500 and the technology-heavy Nasdaq marked their third straight day of declines as investors booked profits following a strong rally since late March. Markets also weighed the possibility that the Federal Reserve could resume interest rate hikes if inflation remains persistent.
Although Brent crude futures settled down 0.73%, they remained above $110 a barrel, as traders tracked developments in the Middle East conflict, which has nearly shut the Strait of Hormuz, a key energy route. U.S. President Donald Trump said he had delayed a planned military strike on Iran but warned that action could resume if negotiations fail, even as he claimed Iran was pushing for a deal.
U.S. Vice President JD Vance said both sides had made progress in talks and were keen to avoid a renewed military campaign, offering some hope for de-escalation.
Meanwhile, the 10-year Treasury yield surged to 4.687%, its highest since January 2025, before easing slightly to around 4.65%, as inflation expectations strengthened.
“There’s nothing constructive that’s leading us to believe there’s going to be a ceasefire with any sort of substance. As long as there is nothing happening along those fronts, oil is remaining high, bond yields are remaining high, and the market’s anxiety levels are getting increasingly elevated,” said Michael James, managing director and equity sales trader at Rosenblatt Securities. He added, “As each day goes by and nothing substantive is happening, that becomes more problematic. That’s why you’re seeing equities having a tough time in the last few days.”
Traders have begun pricing in higher odds of rate hikes, with a 25-basis-point increase in December seen at a 41.7% probability and a 50-basis-point hike at 15.7%, according to CME Group’s FedWatch tool. Investors now await minutes from the Fed’s latest policy meeting for further guidance.”Rates are obviously front-and-center,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. “It’s really not about the level of rates. It’s about the rate of change. Markets can handle a slow, steady grind higher, but when you have these step functions higher, that’s where it tends to translate to some indigestion in the market.”
According to preliminary data, the S&P 500 fell 48.74 points, or 0.66%, to 7,354.31, while the Nasdaq Composite dropped 216.56 points, or 0.83%, to 25,874.18. The Dow Jones Industrial Average declined 312.77 points, or 0.65%, to 49,373.35.
Sector-wise, the S&P 500 software index reversed earlier gains to end lower, while the Philadelphia Semiconductor Index saw choppy trade and was down more than 3% at one point. The defensive healthcare sector outperformed during the session.
Investors are also focused on Nvidia’s quarterly results due Wednesday, with markets looking for confirmation that AI-driven demand can sustain elevated valuations across the semiconductor space.
Among individual stocks, Akamai Technologies fell after announcing a $2.6 billion convertible bond offering.
