U.S. stock indexes fell on Wednesday as crude oil surged and Treasury yields climbed after President Donald Trump said the ceasefire with Iran is over following U.S. strikes. The S&P 500 slipped, the Dow underperformed, and the Nasdaq 100 declined, with investors rotating defensively amid rising inflation expectations and higher bond yields.
While broader markets slid, shares tied to semiconductors and AI infrastructure pared some of Tuesday’s losses. Energy stocks gained as WTI climbed to a two-week high, reinforcing the market’s focus on the impact of Middle East tensions on fuel prices.
Key takeaways
- Price move: The S&P 500 fell about 0.79%, the Dow declined about 1.44%, and the Nasdaq 100 dropped about 0.61%.
- Catalyst: Oil jumped after Trump said the Iran ceasefire ended and suggested further actions, lifting yields and inflation expectations.
- Rates impact: The 10-year Treasury yield rose to a 1.5-month high, pressuring rate-sensitive sectors such as housing.
- Sector divergence: Energy and parts of the semiconductor/AI complex advanced, partially offsetting weakness elsewhere.
- Implication: Investors appeared to price in higher macro uncertainty as geopolitical risk translated into higher energy and borrowing costs.
What drove the move
Market participants pointed to a rapid repricing of risk following developments in the Middle East. According to the report, Trump characterized the ceasefire with Iran as “a waste of time” and said the U.S. would likely conduct additional strikes, following attacks on ships transiting the Strait of Hormuz. The escalation also increased the likelihood of renewed disruption to energy supplies, lifting oil prices sharply.
Data cited in the report showed crude prices rising to a two-week high, with WTI up more than 7% on the day. The report also said the U.S. revoked an Iran oil waiver that previously allowed buyers to purchase and transport Iranian oil legally—an additional factor contributing to the move in crude.
Higher energy prices fed directly into bond-market repricing. The report said the 10-year Treasury yield reached a 1.5-month high of 4.59%, and the 10-year breakeven inflation rate rose to a two-week high of 2.277%. Together, the figures reflected expectations for elevated inflation pressure even as equities sold off.
Market reaction across sectors
Rising yields weighed on housing-linked names. The report attributed the pressure in homebuilders and suppliers to the jump in the 10-year Treasury yield and the implication for mortgage demand. It noted declines in builders including Builders Firstsource, DR Horton, and Pulte Group, along with weakness across major home improvement and homebuilding peers.
Airlines and cruise operators also slid. The report said the group came under pressure after WTI moved higher, given the sensitivity of travel and leisure margins to fuel costs, with several large operators falling by mid-single-digit percentages.
Software stocks were another drag on the broader tape, as multiple companies in enterprise technology slipped. The report listed declines across names including Palantir, Intuit, Workday, ServiceNow, and Microsoft, among others.
By contrast, energy equities led gains. The report highlighted outperformance from Occidental Petroleum and Valero Energy, while multiple oil services and refiners climbed alongside crude. The strength in the energy complex aligned with the move higher in WTI and the market’s renewed focus on supply-risk scenarios tied to the Strait of Hormuz.
Semiconductor and AI infrastructure stocks rebounded from Tuesday’s sell-off, according to the report. It cited strength in the semiconductor exchange-traded fund iShares Semiconductor ETF and gains in several chipmakers, suggesting that investors continued to find pockets of support even as macro conditions deteriorated.
Rates, inflation expectations and policy probabilities
The report showed pressure in Treasury markets alongside the oil-led inflation read-through. It said 10-year T-notes fell and the yield rose to the day’s upper range, with the report also referencing supply pressures from a Treasury auction of $39 billion of 10-year T-notes later in the day.
Inflation expectations moved higher in tandem, with the report citing the two-week high in 10-year breakeven inflation. In Europe, the report said government bond yields also increased, including rises in German bund and UK gilt yields to multi-week highs.
Policy expectations shifted as well. The report said markets were pricing a 33% chance of a 25-basis-point rate hike at the next Federal Reserve meeting on July 28-29. For the European Central Bank, it said swaps were discounting a 17% chance of a 25-basis-point hike at the next policy meeting on July 23.
ECB messaging added to the uncertainty. The report attributed the view to ECB Governing Council member and Bundesbank President Joachim Nagel, who said he cannot rule out another ECB interest rate increase due to the recent setback related to Iran.
Macro data and earnings expectations
Beyond geopolitical developments, the report pointed to a housing-related macro read-through from mortgage data. According to the report, U.S. MBA mortgage applications fell 2.2% in the week ended July 3, with the purchase mortgage index down 0.6% and refinancing down 4.1%. It also said the average 30-year fixed rate rose 1 basis point to 6.58%.
On the earnings side, the report cited a favorable earnings outlook supported by AI spending. According to Bloomberg Intelligence estimates referenced in the report, Q2 earnings may rise about 23%, near Q1’s stronger growth rate of 30% and above the earlier consensus expectation of 12%. The report said AI infrastructure is expected to account for close to 60% of S&P 500 earnings-per-share growth in Q2.
That earnings backdrop appeared to limit losses in pockets of the market, but the day’s dominant driver remained the oil-and-rates shock.
Looking ahead, investors will likely focus on whether crude remains elevated and how sustained energy prices influence inflation expectations and Treasury yields. With the next policy decisions on the calendar—along with upcoming earnings releases—attention is likely to stay on the interaction between geopolitical risk, bond-market repricing, and the durability of AI-driven earnings strength.
