U.S. stock indexes slipped Tuesday and gave back part of the rally from the day before as investors digested fresh signals on the war in the Middle East and what it could mean for energy prices and interest-rate expectations. The S&P 500 fell 0.4% after trading sharply higher earlier in the day, while the Dow Jones Industrial Average dropped 84 points, or 0.2%, and the Nasdaq composite slid 0.8%.
The market swings followed a fast shift in sentiment after President Donald Trump said Monday that the United States and Iran held “productive talks” about a “complete and total resolution of our hostilities in the Middle East.” That comment came just before Wall Street opened, triggering a rapid reversal in financial markets worldwide and prompting investors to reconsider the war’s expected duration and potential spillover into oil and natural gas markets in the Persian Gulf.
Tuesday’s trading reflected the mixed picture that emerged after that initial optimism. The war continued with attacks in the Middle East, while diplomatic signals also circulated: Pakistan Prime Minister Shehbaz Sharif wrote on X that his country was ready to “facilitate meaningful and conclusive talks” to end the Iran war.
Energy prices rose even as stocks pulled back. Brent crude settled up 4.6% at $104.49 per barrel after slumping more than 10% the prior day, and benchmark U.S. crude rose 4.8% to $92.35 per barrel after also dropping more than 10% the day before.
Bond markets moved as well, with Treasury yields rising and adding pressure on financial conditions. The yield on the 10-year Treasury climbed to 4.39% from 4.34% late Monday, and the 2-year Treasury yield rose to 3.92% from 3.83% late Monday. Higher yields can make mortgages and other borrowing more expensive for households and businesses, and they tend to weigh on investment prices across asset classes.
Those rate moves fed into changing expectations for the Federal Reserve. Traders had entered the year expecting the central bank to resume interest-rate cuts, but the combination of oil’s jump and concerns about high inflation left traders nearly erasing bets for a cut this year, and the data referenced from CME Group suggested some were even pricing in the possibility of a rate hike. The market’s shift also coincided with renewed weakness in gold, which settled at $4,402.00 per ounce, down roughly $1,000 from an early-month high.
Corporate moves added to the day’s stock-specific trading. Estee Lauder dropped 9.8% to one of the sharpest losses after confirming it is in merger talks with Spanish cosmetics company Puig, with Estee Lauder saying no final decision has been made yet. Smithfield Foods, by contrast, rose 4.3% after reporting stronger profit and revenue for the latest quarter than analysts expected.
All told, the S&P 500 fell 24.63 points to 6,556.37, the Dow slipped 84.41 points to 46,124.06, and the Nasdaq composite sank 184.87 points to 21,761.89. In overseas markets, indexes were mixed in Europe, while Asian stocks rose after Trump’s Monday remarks on potential talks, with Hong Kong’s Hang Seng gaining 2.8% and South Korea’s Kospi climbing 2.7%.