As of midday, the S&P 500 (^GSPC 1.00%) fell 1.00% to 7,312.58, the Nasdaq Composite (^IXIC 1.26%) dropped 1.27% to 25,352.11, and the Dow Jones Industrial Average (^DJI 1.27%) lost 1.22% to 50,239.76 as hotter inflation and Iran tensions fueled a broad sell-off.
Market movers
AI and chip names remained under heavy pressure this morning, with Super Micro Computer plunging over 17% after announcing a $7 billion equity raise. Sector leaders like Nvidia and Micron Technology extended their pullback. Robinhood Markets jumped 6% on a strategic update.
What this means for investors
Inflation fears and escalating Iran tensions pressured stocks this morning, with the May Consumer Price Index reaching a three-year high of 4.2%. Core inflation, which accounts for everything apart from food and energy, rose 2.9% year on year.
The war in Iran and near closure of the Strait of Hormuz have pushed oil prices upward, playing a major role in accelerating inflation. With negotiations stalled and talk of a re-escalation of hostilities, it isn’t clear how long oil prices will remain elevated, which further shakes investor sentiment.
At the start of this year, Wall Street expected the Federal Reserve to cut rates, but high inflation means those hopes have faded. Some economists are pricing in a rate increase before the end of the year, while others expect them to remain unchanged. High interest rates make borrowing more expensive, pressuring stock markets.
It is too early to say whether the recent rally has topped, particularly as recent pullbacks have been met with dip buying and rebound rallies. Even so, investors are rotating into defensive stocks, with energy, financial services, consumer defensive, and real estate among the few sectors in the green this morning.
Emma Newbery has positions in Nvidia. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.
