S&P 500 falls 1.3% as Iran threats, 4% inflation and chip rout converge

Escalating Iran tensions, inflation above 4%, and a deepening chip selloff pushed the S&P 500 down 0.8% and the Dow down 650 points.

The S&P 500 fell 0.8% and the Dow Jones Industrial Average dropped 650 points, or 1.3%, as three distinct catalysts converged to pressure equities. The Nasdaq Composite slid 1.1%.

"The Iran war story is really consequential," said Jed Ellerbroek, portfolio manager at Argent Capital Management. "Either investors are going to be proven right, that nothing to worry about, Trump will take care of it, we'll get a deal with Iran and the strait will open up, but if not, it feels like oil prices are going to have to go up a lot."

The iShares Semiconductor ETF fell another 1% Wednesday after a 10% plunge last Friday and a 3%-plus drop Tuesday, leaving the fund up about 82% for the year. West Texas Intermediate crude futures climbed 2.8% to top $90 a barrel, while Brent crude traded above $92. Gold extended its decline, falling more than 1% to touch $4,180, down more than 25% from its yearly high.

The simultaneous escalation in the Middle East and a hot inflation print threaten to keep the Federal Reserve on hold, complicating the outlook for rate-sensitive growth stocks already under pressure from profit-taking in the AI trade. Headline CPI climbed above 4% for the first time in three years, matching economist forecasts at 4.2%. Core CPI, which excludes food and energy, rose 0.2% on a monthly basis, slightly below the 0.3% estimate. Markets continue to price in at least one quarter-point rate increase before year-end, according to CME FedWatch data.

The selloff began after President Donald Trump said Iran had taken "too long to negotiate a deal" and warned the country would "have to pay the price." U.S. forces launched retaliatory strikes after Iran downed an Army Apache helicopter near the Strait of Hormuz, according to U.S. Central Command. The developments pushed oil higher and added a geopolitical risk premium that weighed on equities.

Semiconductor stocks remained under the heaviest pressure. Shares of Micron Technology, Advanced Micro Devices, Nvidia and Broadcom all declined, extending losses that began late last week. Some traders attributed the weakness to profit-taking after an extended AI-driven rally, while others pointed to capital rotation ahead of the SpaceX IPO on Friday, which is targeting a $75 billion raise at a $1.75 trillion valuation.

Among individual movers, Super Micro Computer fell nearly 13% after announcing plans to raise $7 billion to fund AI server demand. Nike slipped after a downgrade from RBC, and trucking companies including XPO, J.B. Hunt and Old Dominion declined after Amazon expanded its freight services business.

This article is for informational purposes only and does not constitute investment advice.