The Dow Jones Industrial Average dropped significantly Wednesday morning, falling 707 points, or 1.3%, as oil prices surged over 6%. The market's reaction was driven by President Donald Trump's vow to retaliate against Iran after missile attacks targeted U.S. forces stationed in Jordan.
Brent crude oil prices jumped 6.4% to $89.45 a barrel, and West Texas Intermediate crude climbed 7% to $84.84. This rise in oil prices fuels concerns about potential worsening energy supply disruptions and a resurgence of inflation. The Dow's decline was noted around 10:10 a.m. ET, with the S&P 500 and Nasdaq also experiencing drops of 0.5% and 0.6%, respectively, ahead of the Federal Reserve's interest-rate decision later that day.
Trump, in an interview with Fox News, stated, "We'll be hitting them hard. They're going to get a beating." He also indicated that negotiations with Iran would continue. U.S. Central Command confirmed that all missiles launched in the overnight attacks were intercepted.
These developments occurred as U.S. and Saudi aircraft conducted strikes on "multiple terrorist logistics and weapons sites" in eastern Iraq, in response to over 30 drone attacks attributed to "Iran-aligned terrorists" in the preceding three days. The U.S. Central Command provided this information.
The market's volatility is also being influenced by broader concerns, including a potential artificial intelligence bubble and increased competition from Chinese technology. Chipmakers such as AMD, Nvidia, and Broadcom saw declines of 3.2%, 2.1%, and 0.6%, respectively.
The Federal Reserve's upcoming meeting, with central bankers widely expected to maintain current interest rates between 3.5% and 3.75%, is also a focus for investors. Reports of increased attacks in the Red Sea have heightened worries about global energy supply stability. The Strait of Hormuz, a critical route for approximately 20% of the world's oil, has faced blockades, contributing to elevated U.S. gasoline prices. New fears have emerged that the Bab el-Mandeb Strait, through which about 7% of global oil supplies pass, could also be disrupted. CME FedWatch data indicated that the odds of a rate hike at the Federal Reserve's upcoming meeting had risen to 35%, with more than half of traders anticipating a quarter-point increase by September.