U.S. Stocks Slide as Middle East Conflict Fuels Inflation and Growth Fears
U.S. stocks fell sharply on Tuesday, although major indexes recovered from their session lows, as escalating tensions in the Middle East weighed on investor sentiment. Concerns over higher inflation and slowing economic growth pressured equities, while retail earnings offered some relief.
At 12:02 ET (17:02 GMT), the S&P 500 dropped 1.4% to 6,785.75, the NASDAQ Composite declined 1.5% to 22,414.96, and the Dow Jones Industrial Average fell 1.4% to 48,202.15.
On Monday, the S&P 500 and Nasdaq ended slightly higher after recovering from early losses triggered by weekend airstrikes on Iran by the United States and Israel. The Dow finished nearly flat, trimming much of its earlier decline.
Inflation Concerns Weigh on Market Sentiment
Investor confidence weakened as the regional conflict broadened. Reports indicated that Iranian drone strikes hit near the U.S. embassy in Riyadh, as well as infrastructure in the United Arab Emirates and Bahrain.
The U.S. State Department ordered the evacuation of non-essential personnel and family members from Bahrain, Iraq and Jordan, signaling rising geopolitical risk.
The United States and Israel launched coordinated strikes against Iran, targeting Tehran and killing Supreme Leader Ali Khamenei. In response, Iran and Hezbollah carried out retaliatory attacks, drawing more Gulf nations into the crisis.
U.S. President Donald Trump said operations were progressing faster than anticipated but could continue as needed, reinforcing concerns that the conflict may persist.
The biggest worry for markets is the inflationary impact. Oil prices surged on fears of supply disruptions, raising the possibility that higher energy costs could push global inflation upward and delay interest rate cuts by major central banks.
Analysts at ANZ described the spike in oil prices as a negative supply shock that increases inflation while also threatening economic growth. The outcome, they noted, will depend largely on the duration of the conflict.
This environment has strengthened expectations that the Federal Reserve may keep interest rates elevated for longer.
Retail Earnings Offer Some Support
On the corporate front, Target forecast annual sales growth above expectations as it prepares for a leadership transition under CEO Michael Fiddelke. The retailer projected 2026 net sales growth of 2%, exceeding analyst estimates of 1.76%. Shares rose more than 4%.
Best Buy also gained after reporting better-than-expected fourth-quarter earnings. Meanwhile, CrowdStrike was scheduled to release results later in the session.
Economic Data and Oil Prices in Focus
While Tuesday’s economic calendar was relatively light, investors are preparing for a busy week ahead that includes retail sales data, ADP employment figures and the closely watched nonfarm payrolls report.
Recent purchasing managers’ index data showed stronger-than-expected manufacturing growth in February. However, ISM figures also revealed rising input prices, even before the latest energy shock from the Middle East.
Oil prices continued to climb, compounding market anxiety. Brent crude futures rose 6.7% to $82.85 per barrel, while U.S. West Texas Intermediate (WTI) increased 6.3% to $75.69 per barrel. Both benchmarks had already closed more than 7% higher in the previous session after briefly reaching one-year highs.
Tensions escalated further after Iranian officials threatened to target vessels passing through the Strait of Hormuz, a critical route for global crude shipments. Any disruption in this key chokepoint could significantly affect global energy supply and keep inflation pressures elevated.
