Dow falls 400 points after U.S. strikes Iran, oil surges

American military strikes on Iranian targets led to a drop in U.S. stocks on Tuesday, with the Dow Jones Industrial Average falling by 412 points and the S&P 500 declining by 0.7%. Oil prices, however, surged past $89 per barrel, while Brent futures topped $93, both rising by about 4%. The strikes targeted Islamic Revolutionary Guard Corps locations in Iran, following an incident where a tanker in the Strait of Hormuz was hit by three unidentified projectiles, prompting President Donald Trump to vow retaliation for Iran's attacks on American military installations.

This development raised concerns about potential inflation, complicating the Federal Reserve's next move on interest rates. Fed funds futures pricing indicated a 66% chance of a rate increase at the two-week meeting. Ross Mayfield, an investment strategist at Baird, noted that the market is grappling with volatility in the bond market, suggesting this issue could persist in the short and long term.

He still expects the Fed to hold rates in September but anticipates at least one rate hike before the year's end. Rising bond yields, including the U.S. 10-year Treasury yield reaching a multiyear high, were driven by factors such as ballooning government deficits, increased competition from corporate debt issuers, and the Fed Chair's reluctance to signal future policy moves. Gold prices fell by 1.9%, and the Cboe Volatility Index rose by 5.8%.