On the 13th, the three major indexes on the New York stock market all fell at the close. The drop was attributed to a surge in global oil prices as geopolitical tensions in the Middle East escalated. As inflation concerns from rising oil prices resurfaced, anxiety that the Central Bank could raise its benchmark interest rate weighed on investor sentiment.
On the New York Stock Exchange (NYSE), the blue-chip Dow Jones Industrial Average fell 138.37 points, or 0.26%, from the previous session to close at 52,498.64. The large-cap Standard & Poor's (S&P) 500 index dropped 0.79% to 7,515.34. The tech-heavy Nasdaq also tumbled 1.55% to finish at 25,873.18.
The United States and Iran traded airstrikes that day as well. The two countries are locked in a standoff over control of the Strait of Hormuz, a key global maritime logistics chokepoint. The Strait of Hormuz is the crucial passageway for most crude exports from Middle Eastern oil producers. If it is blocked, the global energy supply chain would take an immediate hit.
That day, U.S. President Donald Trump said on social media that he would "restore a naval blockade to stop Iranian ship traffic." Trump said the United States would act as the guardian of the Strait of Hormuz and would impose a 20% toll on all cargo passing through the strait in return for providing security.
After the news broke, global oil prices spiked sharply. West Texas Intermediate (WTI) futures jumped 9.4%, topping $78 a barrel. Brent futures, the global benchmark, also climbed 9.6%, surpassing $83 a barrel.
The surge in oil prices immediately stoked inflation fears. The market began to brace for the possibility that the Federal Reserve (the Fed) would raise rates again to tame prices. Federal Reserve Governor Christopher Waller noted that "a rate increase may be necessary to control inflationary pressures." According to CME FedWatch from the Chicago Mercantile Exchange (CME), the probability that the Fed will raise rates by 0.25 percentage points in July jumped above 41%.
Experts said volatility is likely to remain elevated for the time being. Ian Lyngen, a BMO Capital Markets strategist, said the situation in the Strait of Hormuz is driving global market pricing and assessed that conditions are likely to worsen before they stabilize. Paul Christopher, a Wells Fargo Investment Institute strategist, also said rising oil prices, inflation, and interest rates would all fuel stock market volatility. Ben Fulton, chief executive of WAPS Investment, projected that the market is likely to trade in a narrow range until a genuine solution emerges for the Middle East issue.
Artificial intelligence (AI) semiconductor-related stocks also broadly weakened. In particular, SK hynix depository receipts (ADR), which recently listed on the Nasdaq, plunged 9%. The more than 15% plunge in SK hynix shares on the Korea stock market that day carried over to the U.S. market. As related stocks had surged in the short term, investors moved to take profits, unleashing sell orders. SanDisk also fell 5.5%, and memory-chip names broadly declined.
Still, Wall Street investment professionals cautioned against turning bearish on the AI industry itself. Fulton, the chief executive, said, "Recent shifts in money have been somewhat hasty," adding, "Investment related to AI remains vibrant." Sonu Varghese, a Carson Group strategist, also said, "Uncertainty in the Middle East persists, but once the full earnings season begins, the AI boom will again lead the market." Fabio Basí, a JPMorgan analyst, viewed the recent weakness in semiconductor stocks as a temporary phenomenon caused by excessive fund flows and noted, "The AI industry's growth cycle has not been fundamentally damaged."