The three major U.S. stock indexes closed lower all at once on the 29th local time. As the Federal Reserve showed a distinctly hawkish (currency tightening-preferred) stance, hopes for rate cuts turned into disappointment. Experts said investor sentiment retreated as military tensions in the Middle East flared again and the artificial intelligence (AI) boom cooled.
On the 29th at the New York Stock Exchange, the Dow Jones Industrial Average plunged 1,152 points, or 2.2%, from the previous session to close. This was the biggest drop since April 2025. The large-cap S&P 500 also slid 1.5%. The tech-heavy Nasdaq likewise fell 1.7% to end the session. In particular, the Nasdaq 100, which tracks major tech stocks, has dropped more than 11% from its June peak, entering a technical correction phase. In the stock market, a correction refers to a decline of 10% or more from a recent high.
At its regular Federal Open Market Committee meeting that day, the Fed held the benchmark interest rate at 3.5% to 3.75% annually. However, 3 of the 12 Commissioners with voting rights on rates argued that rates should be raised. Specifically, Beth Hammack, president of the Cleveland Federal Reserve Bank, Neel Kashkari, president of the Minneapolis Federal Reserve Bank, and Lorie Logan, president of the Dallas Federal Reserve Bank, said that day that "rates should be raised."
This is interpreted to mean that concerns about rising prices (inflation) remain deeply rooted within the Fed. Fed Chair Kevin Warsh said at a press conference after the regular meeting, "If and when necessary and appropriate, we will not hesitate to act," issuing a warning about rate hikes.
As expectations that the Fed would cut rates faded, market bond yields jumped immediately. The 10-year U.S. Treasury yield, the global benchmark for bond yields, surged 0.06 percentage point (6 basis points) on the day to top 4.66%. The 30-year Treasury yield, which affects various long-term rates such as mortgage loans, jumped 0.1 percentage point (10 basis points) in a single day to break through 5.2%. This is the record high since 2007, just before the global financial crisis. When Government Bonds yields rise, corporations' funding expense increases and consumers' interest burdens grow, dealing a fatal blow to the stock market.
Wall Street investment experts reacted coolly to the Fed's decision. Jeffrey Gundlach, CEO of DoubleLine Capital, said, "To lower inflation to the 2% target, the Fed actually needs to raise rates," adding, "Bond market investors are pushing up rates as they demand concrete action, not just words, from Chair Warsh."
Geopolitical tensions in the Middle East also fueled the stock plunge. After U.S. forces were hit by a surprise attack from Iran, U.S. President Donald Trump hinted at a hard-line response, and international oil prices spiked that day. In an interview with Fox News, Trump warned, "We will strike Iran hard."
As war fears grew, West Texas Intermediate settled up more than 6% at $84.46 per barrel. According to Bloomberg's tally, intraday prices threatened the $85-a-barrel level. A surge in international oil prices lifts not only gas station prices but also factory operating expense and logistics costs, stoking inflation across the economy. In that case, it becomes even harder for the Fed to cut rates, creating a vicious cycle.
Shares of semiconductor corporations that had led the AI boom also suffered steep losses across the board that day. The Philadelphia Semiconductor Index plunged 5.3%, extending its losing streak to five sessions. The iShares Semiconductor ETF, a product that bundles semiconductor-related stocks, also fell 5.5%.
Experts said SK hynix's results, once considered a core AI beneficiary, fell short of market expectations, weighing on tech stocks broadly. When Morgan Stanley called the results of chip equipment makers including KLA "disappointing," other semiconductor-related corporations' shares also tumbled in tandem. As investors begin to question the profitability actually being earned relative to the massive investment expense corporations are pouring into AI, sentiment toward semiconductor-related corporations has frozen rapidly in recent days.
Still, some in the market are cautioning against excessive fear. Jim Caron, chief investment officer for Morgan Stanley Investment Management's institutional sector, said, "The long-term trend for the stock market remains positive," adding, "The Fed is unlikely to raise rates so sharply that it breaks the market." This is interpreted to mean the latest drop could be a buying opportunity on the dip.