U.S. equities fell sharply Tuesday, opening a shortened trading week with broad losses across major indexes. The Dow Jones Industrial Average tumbled 628.18 points, or 1.18 percent, closing at 52,786.07. The S&P 500 declined 0.58 percent to 7,673.52, while the Nasdaq Composite was down 0.32 percent to 26,421.41.
All three benchmark indexes recorded back-to-back losses, following declines from Friday. Markets remained closed Monday for Labor Day.
Rising oil prices exerted significant pressure on stocks, with West Texas Intermediate futures extending gains for a sixth consecutive day—the longest rally for WTI since March. Brent crude oil futures traded above $98 per barrel during the session. The surge followed escalating Middle East tensions, including an exchange of blows between the U.S. and Iran over the weekend, and attacks on Saudi Arabia's oil facilities.
Treasury yields climbed alongside energy prices. The benchmark 10-year Treasury note yield reached its highest level since November 2023, while the 2-year note yield hit a January 2025 high. These moves signal markets are pricing in stickier inflation ahead of key economic data.
The Producer Price Index for August is due Thursday, followed by the Consumer Price Index for August on Friday. Fed funds futures showed a 59 percent probability the Federal Reserve will raise rates by a quarter-percentage point after its Sept. 15-16 meeting, according to the CME Group's FedWatch tool. Mark Hackett, chief market strategist at Nationwide, said an upside CPI surprise would make it difficult for the Fed to avoid a rate hike.
Renewed trade tensions between the United States and Canada added to headwinds Tuesday. Retaliatory tariffs from Canada, impacting approximately $20 billion worth of U.S. goods, took effect. President Donald Trump addressed the dispute Monday, stating that Canadian aircraft manufacturer Bombardier cannot sell products in the United States unless Canada manufactures them within U.S. borders.
The semiconductor sector stood out against the broader decline. The VanEck Semiconductor ETF (SMH) gained 1.2 percent. Intel surged 9.1 percent, Advanced Micro Devices climbed 5.9 percent, and Broadcom increased 3 percent—a divergence worth watching as investors rotate into tech on expectations that AI capex will drive near-term chip demand regardless of rate policy.
