Wall Street falls across the board as oil surges, bond yields spike on US-Iran clashes

All three major US stock indexes fell Tuesday as renewed fighting between the United States and Iran sent oil prices sharply higher, stoking inflation fears. A deepening selloff in global bond markets that drove government yields sharply higher added to the pressure.

The Dow Jones Industrial Average closed down 419.02 points, or 0.79 percent, at 52,766.88.

The S&P 500 fell 54.67 points, or 0.71 percent, to 7,631.47, while the tech-heavy NASDAQ Composite dropped 271.12 points, or 1.03 percent, to 26,099.77.

The resumption of US-Iran hostilities rattled investor sentiment. The US launched a second round of airstrikes against Iran on Tuesday, two days after the first. Washington said the strikes were in response to attacks by Iran's Islamic Revolutionary Guard Corps on civilian vessels in the Strait of Hormuz and on US forces deployed in the Middle East.

Iran retaliated with its own strikes, sending oil prices surging about 5 percent. November-delivery Brent crude futures settled up 4.60 percent at $94.65 a barrel, while October-delivery West Texas Intermediate rose 5.20 percent to $90.22 — their highest levels since July 24 and July 23, respectively.

The global bond selloff deepened on growing concerns that elevated oil prices could stoke inflation. The US 10-year Treasury yield climbed to around 4.79 percent, its highest level since January last year.

Expectations for a Federal Reserve interest rate hike in September also grew. CME Group's FedWatch tool showed fed funds futures markets pricing in a 68 percent probability of a 25-basis-point rate increase at the Fed's September meeting.

"Following hawkish remarks from Fed Chair Kevin Warsh, the strikes on Iran and the surge in oil prices piled on at once," said Ross Mayfield, an analyst at investment firm Baird. "It formed a perfect combination of headwinds to fuel risk-off sentiment in a market that had been trading near all-time highs."

Among the 11 major S&P 500 sectors, energy was the only one to finish higher. Consumer discretionary stocks and technology shares — particularly semiconductors — led the decline as investors took profits.

The Philadelphia Semiconductor Index fell 2.1 percent. Nvidia dropped 1.51 percent, while AMD and Micron declined 2.36 percent and 2.64 percent, respectively.

Seo Sang-young, a managing director at Mirae Asset Securities, said reports that Texas had suspended new grid-connection approvals to conduct a full audit of 474 gigawatts of pending interconnection requests highlighted regulatory risks and deepened anxiety across the semiconductor sector.