Major indexes on the New York stock market closed sharply lower across the board. As the war between the United States and Iran drags on, skepticism toward cease-fire talks blanketed the market. With international crude oil again topping $100 per Barrel and U.S. Government Bonds yields surging, investor sentiment froze solid.
On the 26th (local time), the Dow Jones Industrial Average finished at 45,960.11, down 469.38 points (1.01%) from the previous session. The large-cap-focused S&P 500 fell 1.74% to 6,477.16. The S&P 500's decline was the biggest since the U.S.-Iran war began.
The tech-heavy Nasdaq composite plunged 2.38% to 21,408.08 at the close. The Nasdaq has fallen more than 10% from its recent peak, entering what is commonly called a correction phase. Typically, when share prices drop more than 10% from a peak, the market is seen as having lost upward momentum and pausing for breath.
U.S. President Donald Trump recently pressed Iran to reopen the Strait of Hormuz, extending the deadline to Oct. 6. He later said negotiations with Iran were "going very well." But he also issued a warning that "military action could be intensified," making it seem unlikely the two countries will reach a diplomatic agreement.
Iran is also showing no sign of compromise. Authorities there set conditions for a deal far higher than before the war, heightening investor anxiety. Some foreign media reported that Iran's parliament is preparing a bill to impose tolls on ships passing through the Strait of Hormuz.
Instability from the Middle East immediately sent international oil prices soaring. Brent futures jumped 5.66% in a day to $108.01 per Barrel. West Texas Intermediate (WTI) also rose 4.61% to $94.48. When oil rises, inflation follows. As inflation fears grew, the 10-year U.S. Government Bonds yield, a global benchmark, climbed to 4.38%. Rising Government Bonds yields mean higher interest costs on loans that corporations must bear. It is especially burdensome for tech companies that need to borrow to invest in future growth.
The tandem rise in oil and yields pulled down shares of the Magnificent 7, the giant tech corporations that lead the New York market. The index grouping the seven corporations fell to its lowest level since late August. Meta Platforms plunged 7.7% after an adverse ruling in a case related to minors' social media addiction.
Semiconductor corporations were also hit hard. As Google researchers unveiled a new technology that sharply reduces the memory capacity needed to run artificial intelligence (AI), concerns about weaker chip demand flared. As a result, Micron Technology tumbled 6.97%, and even SK hynix shares fell intraday in the Asian market.
Financial experts say the odds are high that market volatility will persist for now. Josh Brown, CEO of Ritholtz Wealth Management, pointed out that tech stocks are no longer a safe haven. Brown explained that closing the Strait of Hormuz is a fatal headwind that goes beyond crude transport to threaten resource supply chains essential to tech corporations.
Mark Malek, CIO of Siebert Financial, assessed that the market faces a double whammy of a potential European Central Bank (ECB) rate hike and an expansion of military conflict hinted at by President Trump. The logic is that a prolonged period of high oil prices will inevitably spur market interest rates and erode the value of growth stocks.
Rob Kapito, president of BlackRock, the world's largest asset manager, warned that investors are underestimating the risks of war. He noted that even if the war ends, it will take considerable time for the damaged supply chain to return to normal, and said the possibility of oil soaring to $150 per Barrel should be kept open.