Dow Jones Tumbles Over 1% as Energy-Driven Inflation and Iran Conflict Rattle Markets

Wednesday started rough, got better, and then worsened again.

The three most popular market indexes started this morning just below breakeven, bounced back slightly in the first couple of hours, and then plunged in unison.

As of 12:12 p.m. ET, the Dow Jones Industrial Average (DJINDICES: ^DJI) and the Nasdaq Composite (NASDAQINDEX: ^IXIC) are down 1.2%. The S&P 500 (SNPINDEX: ^GSPC) is doing slightly better at a 0.9% drop. Last week's steady march to new all-time highs feels distant today.

^IXIC data by YCharts

Why stocks sold off after a brief morning rally

'Tis the season for economic reports, and that's not always good news.

May's Consumer Price Index rose 4.2% year over year, the highest annual reading since April 2023. Economists had expected these figures, but the inflation report underscored months of rising consumer concerns. Soaring energy prices accounted for more than 60% of the month's overall inflation surge. The ongoing conflict with Iran is pushing energy prices higher with cascading effects on broader inflation.

Markets took the inflation data in stride at first. Then, President Trump threatened increased military action in Iran in retaliation for a drone that downed an Apache helicopter. His Truth Social posts turned the rising market trends sour again.

Image source: Getty Images.

Caterpillar (NYSE: CAT) was the largest drag on the Dow, falling 5.9% and subtracting 331 points from the index. The stock had gained more than 50% year-to-date heading into this week, partly on optimism around AI-related data center construction. Hot inflation and rising bond yields triggered a sharp reversal this week.

Semiconductor stocks continued their recent slide, weighing on the cap-weighted S&P 500 and Nasdaq Composite indexes. Nvidia (NASDAQ: NVDA) fell 2.7%, erasing $131 billion in market cap, while Broadcom (NASDAQ: AVGO) dropped 4.8% to shed $86 billion. Neither company had bad news to share, beyond the broader risk-off trend.

From the "things that don't make sense" department: gold fell 3% despite all the geopolitical chaos. Rising yields are apparently a bigger deal than safe-haven demand right now. Bitcoin (CRYPTO: BTC)on the other hand, actually rose, with the iShares Bitcoin Trust ETF (NASDAQ: IBIT) up 0.5%. One day does not make a trend, but it's at least worth noting that Bitcoin acts like a safe haven for once.

Buckle up; SpaceX lands Friday

The Federal Reserve will almost certainly hold rates steady at its June meeting, but a hike later this year remains very much on the table. Tech giant Oracle (NYSE: ORCL) reports earnings tonight, giving investors a rare spot of high-profile business data in the space between two earnings seasons. Thursday's wholesale inflation data (the producer-side version of today's consumer-facing inflation figures) will add another data point. Friday brings the SpaceX (expected ticker: SPCX) IPO, poised to be the largest market launch in history.

For now, investors are stuck navigating sticky inflation, unpredictable geopolitics, and a tech sector that can't find its footing. The fundamentals of the companies leading today's decline haven't changed. The unpredictable macro backdrop is what's driving prices right now. Stop me if you've heard this before.

Anders Bylund has positions in Bitcoin, Nvidia, and iShares Bitcoin Trust. The Motley Fool has positions in and recommends Bitcoin, Broadcom, Caterpillar, Nvidia, Oracle, and iShares Bitcoin Trust. The Motley Fool has a disclosure policy.