The three major U.S. stock indexes ended mixed, diverging as they ran into heightened war jitters in the Middle East and concerns about rising prices.
On the 29th (local time), the Dow Jones industrial average fell 0.6% from the prior session to close the session. The large-cap benchmark Standard & Poor's (S&P) 500 ended flat with virtually no change (0.0%). In contrast, the tech-heavy Nasdaq 100 rose 0.6% to close the day.
The biggest driver of market volatility was the conflict between Iran and the United States. Reports said that day that U.S. President Donald Trump instructed his aides to prepare for a long-term blockade of Iran. The fallout stoked worries that the standoff around the Strait of Hormuz, the Middle East's key oil shipping lane, will persist.
On fears of disruptions to oil supply, international crude prices surged to a war-level record high. June delivery Brent futures transacted around $118 a barrel, the highest since Mar. 31. It was the eighth straight session of gains. West Texas Intermediate (WTI) likewise jumped 8.2% to $108.11 a barrel.
As fuel prices jumped and stoked inflation, the Federal Reserve decided to hold rates rather than cut them hastily. Federal Reserve Chair Jerome Powell, ahead of stepping down, warned at his final press conference of the year that "inflation has not yet peaked." The point was that it is unclear how strong the inflationary pressure sparked in the Persian Gulf will be. This landscape is seen as the biggest challenge awaiting Kevin Warsh, the chair-designate.
Experts said the market mood has completely shifted. David Krakauer, vice president of portfolio management at Mercer Advisors, said, "All economic problems lead back to the Strait of Hormuz." The analysis is that a blockade of the strait will hit economic indicators and the overall growth engine. Alicia Fuller, a managing director at Steward Partners, likewise noted that today's sentiment is entirely different from when investors expected rate cuts.
In practice, market investors have effectively abandoned hopes for rate cuts this year. Sentiment now assigns greater odds to rate hikes than cuts. Some have even started to price in a worst-case scenario of raising rates again in 2027.
As fears grew that rate cuts could evaporate, U.S. Government Bonds yields also climbed. The 10-year Treasury yield rose 0.07 percentage point to 4.41%. The 2-year Treasury yield likewise rose 0.10 percentage point to 3.93%. Government Bonds yields tend to track expectations for the U.S. policy rate. If the policy rate is seen staying high, Government Bonds yields rise in tandem.
Divisions inside the Federal Reserve poured fuel on market uncertainty. After the rate hold decision, Commissioners clashed over the wording of the statement released. Three members, including Beth Hammack, president of the Cleveland Federal Reserve Bank, supported holding rates but opposed inserting biased language hinting at potential future rate cuts. Angelo Kourkafas of Edward Jones interpreted the display of disagreement as "a result of a more hawkish (preference for monetary tightening) tilt in preparation for prolonged inflation."
By stock, earnings drew a sharp line between winners and losers. Investor attention centered on the scorecards of big artificial-intelligence tech names. Alphabet rose on solid sales. Amazon also held up as its cloud institutional sector posted its fastest quarterly growth in three years. In contrast, Meta Platforms fell after the closing bell as it said it would increase institutional sector expenditure to build out artificial intelligence. Microsoft, despite growth in cloud, failed to dispel investors' concerns about artificial-intelligence profitability.
Among consumer-goods corporations, Starbucks rose 8.4%, posting its best performance since March last year, and Yum Brands added 2.2%. Toy corporations Mattel beat sales expectations on stronger demand for Hot Wheels mini cars. Automaker Ford also raised its annual profit outlook on robust demand for higher-margin trucks.
Bloomberg, citing experts, analyzed that "if the aftermath of the Middle East war keeps pushing up energy expenses, U.S. consumer wallets will ultimately close and consumer-goods corporations' earnings will inevitably take a hit."
Bitcoin, the bellwether among virtual assets, fell 1.2% to around $75,573. Spot gold, considered a safe asset, also finished down 1.1% at $4,548.