U.S. Stocks Close Tuesday with Losses

(MENAFN) U.S. equities closed in the red Tuesday as the escalating Middle East conflict threatened to upend global trade flows and breathe new life into inflation, sending investors to the sidelines and volatility sharply higher.

The Dow Jones Industrial Average slid 403.51 points, or 0.83 percent, to settle at 48,501.27. The S&P 500 lost 64.99 points, or 0.94 percent, to close at 6,816.63, while the Nasdaq dropped 232.17 points, or 1.02 percent, to finish at 22,516.69. The Volatility Index (VIX) — widely referred to as the “fear index” — climbed 9.93 percent to 23.57 points.

Selling pressure mounted as weekend strikes by U.S. and Israeli forces against Iran rolled into a third day, with Tehran pressing forward with retaliatory missile and drone attacks. Iranian authorities compounded market anxiety by announcing the closure of the Strait of Hormuz to all transit traffic, warning that any vessel attempting passage through the strategic waterway would be targeted.

Oil prices responded swiftly. Brent crude surged more than 5 percent to $81.70 per barrel, while West Texas Intermediate (WTI) climbed over 4 percent to $74.50 per barrel — gains that, while retreating from intraday peaks following President Donald Trump’s remarks, remained substantial by session’s end.

Trump moved to reassure markets, saying he had directed officials to provide political risk insurance and financial guarantees at reasonable cost to protect maritime energy trade moving through the Gulf. He further pledged that the U.S. Navy would escort tankers through the Strait of Hormuz if the situation demanded it, vowing that Washington would guarantee the “free flow of energy to the world” regardless of circumstances.

Analysts cautioned, however, that sustained high energy prices could rekindle inflation and place the Federal Reserve in a difficult position — particularly as policymakers already navigate tariff-driven price pressures. Fed officials offered measured but diverging assessments. Minneapolis Fed President Neel Kashkari said it was premature to gauge the conflict’s inflationary fallout, adding that monetary policy was currently in a pretty good place. New York Fed President John Williams indicated that further rate reductions would eventually be warranted should inflation continue to moderate. Kansas City Fed President Jeff Schmid sounded a more cautious note, warning that inflation has stubbornly remained above the central bank’s target for nearly five years and that policymakers have little room for complacency.

Investors are closely tracking further guidance from Fed officials for signals on the rate outlook.

In corporate news, OpenAI disclosed Tuesday that it is walking back a recently announced agreement to supply artificial intelligence tools to the Pentagon, after the deal drew sharp criticism for being hastily assembled and raising fears over potential domestic surveillance — concerns that also triggered a wave of ChatGPT subscription cancellations.

“We shouldn’t have rushed to get this out,” OpenAI CEO Sam Altman wrote in a message later reposted on X, adding that the issues surrounding military AI use are “super complex” and require clearer communication.

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