Dow plunges 1,000 points as Trump threatens Iran, oil surges 7%

US stocks suffered their worst session in months as President Trump's threat to strike Iran sent oil prices surging and deepened a selloff in technology shares.

The Dow Jones Industrial Average plunged more than 1,000 points, or 2.1%, after Trump vowed to retaliate against Iran's surprise missile attacks on US forces stationed in Jordan. The S&P 500 fell 1.1% and the Nasdaq Composite dropped 1.1%, while the Philadelphia Semiconductor Index tumbled 3.8%.

"The market is pricing in a tail risk that was off most investors' radar a week ago — a sustained Middle East conflict that keeps oil above $90 and forces the Fed's hand," said Michael Wilson, chief equity strategist at Morgan Stanley.

The Cboe Volatility Index surged above 28, its highest level since January, as declining stocks outnumbered advancers by more than 5-to-1 on the New York Stock Exchange. Consumer staples was the only S&P 500 sector in positive territory, gaining 4.1%, while information technology and industrials led the declines. Trading volume was about 30% above the 20-day average.

The selloff erased more than $1.5 trillion in market value across US equities, with the Federal Reserve's two-day policy meeting now carrying outsized importance. Traders see a 35% chance of a quarter-point rate hike Wednesday, up from 26% a week ago, as higher energy costs threaten to reignite inflation. More than half of traders anticipate a rate increase by September, according to CME FedWatch data.

West Texas Intermediate crude jumped 7% to $84.84 a barrel, while Brent crude surged 6.4% to $89.45, after Trump told Fox News the US would retaliate against Iran following the overnight missile attacks. US Central Command said all missiles were successfully intercepted. The US and Saudi Arabia launched joint airstrikes on Iran-aligned targets in eastern Iraq in response to more than 30 drone attacks over the past three days.

The Strait of Hormuz, through which about 20% of the world's oil flows, has been largely blockaded for months amid the conflict, causing the largest energy supply disruption in history. The UK Maritime Trade Operations Centre reported suspicious activity in the Red Sea on Tuesday, raising fears that a second critical shipping route through the Bab el-Mandeb Strait could also be compromised.

Chip Stocks Extend Slide as AI Worries Mount

Semiconductor shares bore the brunt of the selloff, with the Philadelphia Semiconductor Index falling 3.8%. Advanced Micro Devices dropped 3.2%, Nvidia lost 2.1% and Broadcom declined 0.6%. The declines extended a rough stretch for chip stocks, which have been under pressure as investors question the sustainability of AI-related spending. Fitch warned this week that an AI market correction, combined with geopolitical uncertainty, could pose a major credit risk.

The 10-year Treasury yield was above 4.60%, down more than five basis points from Monday's close, after hitting its highest level since January at nearly 4.72% last week. The US dollar index fell 0.2% to 101.38, while gold futures declined 1.2% to $4,025 an ounce. Bitcoin traded around $63,700, down from overnight highs near $65,000.

The selloff comes during the busiest week of the earnings season, with Microsoft, Meta, Apple and Amazon all set to report results. Investors have been punishing tech stocks that beat estimates but signal higher AI spending, a dynamic that could intensify if the geopolitical backdrop continues to deteriorate.

This article is for informational purposes only and does not constitute investment advice.