Stocks slumped Wednesday morning and oil prices jumped over 6% after President Trump vowed to “beat the f–king s–t out of” Iran – fueling fears of a lasting conflict that could reheat inflation and push the Fed to hike interest rates.
The Dow Jones Industrial Average plunged 707 points, or 1.3%, by about 10:10 a.m. ET, while the S&P 500 and Nasdaq fell 0.5% and 0.6%, respectively, ahead of the Federal Reserve’s interest-rate decision scheduled for Wednesday afternoon.
Brent crude oil prices surged 6.4% to $89.45 a barrel while West Texas Intermediate crude jumped 7% to $84.84 on concerns that a broadening Middle East conflict could worsen an already historic energy supply disruption.
Mounting fears around a potential AI bubble and concerns that China’s own technology is catching up to US rivals also continued to weigh on stocks Wednesday.
Stateside chipmakers like AMD, Nvidia and Broadcom sank 3.2%, 2.1% and 0.6%, respectively.
Investors were spooked after Trump vowed to retaliate against the Islamic Republic’s surprise overnight missile attacks targeting US troops stationed in Jordan.
US Central Command said all of the missiles were successfully intercepted.
“We’ll be hitting them hard,” Trump told Fox News chief foreign affairs correspondent Trey Yingst in a brief interview. “They’re going to get a beating.”
Despite the plans for retaliation, Trump added that negotiations with Iran will continue, saying, “We’re going to let them keep talking.”
Meanwhile, US and Saudi aircraft hit “multiple terrorist logistics and weapons sites” in eastern Iraq in response to more than 30 drone attacks in the past three days by “Iran-aligned terrorists,” according to Centcom.
The renewed threats came just ahead of Kevin Warsh’s second Fed meeting as chairman, when central bankers are largely expected to hold interest rates in the 3.5% to 3.75% range.
Warsh’s surprisingly hawkish stance on inflation has quashed hopes for a rate cut anytime soon, especially since a drawn-out Middle East conflict could send energy prices even higher – sending the odds of a rate hike at Wednesday’s meeting up to 35%, according to CME FedWatch.
More than half of traders anticipate the Fed will raise interest rates by a quarter point by September.
Meanwhile, the UK Maritime Trade Operations Centre on Tuesday reported “suspicious activity” in the Red Sea – following reports last week of Houthi attacks on vessels in the area.
The Strait of Hormuz, a vital maritime route for 20% of the world’s oil in the Persian Gulf, has been largely blockaded for months amid the war with Iran – causing the world’s worst-ever energy supply disruption and sending US gasoline prices above $4 a gallon.
Reports of fresh strikes in the Red Sea have raised new fears that a second critical shipping route through the Bab el-Mandeb Strait, which carries about 7% of global oil supplies, could also be compromised.