Wall Street ended lower on Tuesday as surging oil prices, rising US Treasury yields and renewed concerns over inflation kept investors cautious ahead of the Federal Reserve’s interest-rate decision.
The Dow Jones Industrial Average fell 328.09 points, or 0.63%, to 52,093.11, while the S&P 500 dropped 34.25 points, or 0.45%, to 7,585.73. The Nasdaq Composite declined 204.84 points, or 0.78%, to 25,981.57.
Energy was the only major S&P 500 sector to advance, rising 2.3% as crude prices climbed following fresh attacks on Saudi Arabia’s energy infrastructure. Front-month West Texas Intermediate crude settled 4.4% higher while Brent gained 2.9%. Diesel futures also closed at a record high.
The jump in oil prices added to inflation concerns just as the Federal Reserve began its two-day policy meeting. Markets were pricing in a 94.5% chance of a 25-basis-point rate increase on Wednesday, according to CME’s FedWatch tool.
“Given rising prices for fuel, especially diesel, given the near-certain outlook for rising rates beginning tomorrow, and given the concerns over the potential slowdown in the AI ecosphere, why step into the market aggressively until some of this clears up?” said Peter Tuz, president of Chase Investment Counsel.
The pressure was also evident in the bond market, with the benchmark 10-year US Treasury yield moving above 5%, its highest level since 2007. The yield had already crossed 5% on Monday for the first time since October 2023 as investors reassessed the outlook for inflation and interest rates.
Higher borrowing costs are particularly significant for heavily indebted companies, including those investing heavily in artificial intelligence. Concerns over the pace and potential impact of AI development also continued to weigh on technology stocks.
The Philadelphia SE Semiconductor Index managed only a 0.4% gain after suffering a sharp decline on Monday, when concerns over AI spending and opposition to new data centres hit chipmakers.
Among individual stocks, Dave & Buster’s plunged 19% after reporting second-quarter revenue below expectations. Waystar gained 7.1% after Reuters reported that the healthcare software company was exploring strategic options including a potential sale.
Cryptocurrency-linked stocks also came under pressure as bitcoin weakened and the US Senate failed to advance comprehensive cryptocurrency legislation. Coinbase fell 10.1% while Strategy dropped 5.4%.
Market breadth remained firmly negative. Declining stocks outnumbered advancers by 2.56 to 1 on the New York Stock Exchange, while the Nasdaq recorded a 2.33-to-1 ratio of decliners to gainers.
Trading volume reached 15.85 billion shares across US exchanges, above the 15.14 billion average over the previous 20 trading days.
Investors now turn to the Fed’s policy decision and guidance on Wednesday, with oil prices, inflation and the outlook for further rate increases likely to remain central to market sentiment.
