Societe Generale analysts summed up the mood on Wall Street Wednesday after the U.S. and Iran unleashed a new round of military strikes across the Middle East: “Here we go again.”
The explosive end of the ceasefire is threatening to reopen ruptures in the oil market that could dent stocks and complicate the Federal Reserve’s inflation fight.
For weeks, investors hoped that falling energy prices would provide a tailwind for the economy in the second half, easing costs for Americans and reducing pressure on an artificial-intelligence build-out increasingly fueled by debt. Fears of the worst oil-supply disruption in history gave way to forecasts of a glut.
But a new spate of strikes by Washington and Tehran in recent days is rattling that outlook. Global oil prices surged Wednesday in their steepest one-day jump since May after President Trump said the truce with Iran is over, drawing warnings that a recent uptick in tanker traffic through the Strait of Hormuz could once again slow to a trickle. Stocks and bonds sold off, with the Dow Jones Industrial Average losing around 577 points.
Similar skirmishes have periodically interrupted fragile diplomatic efforts to end the war. Many of them came when markets were closed on weekends, however, giving investors time to digest their impact. The difference now is that Wall Street is scrambling in real-time to assess the fallout of new fighting and Trump’s whirlwind statements—and whether they will yield another tenuous deal or signal a fresh round of escalation.
“We always expected it to be a rocky road to resolution, but this is a pretty big rock,” said Tyler Rosenlicht, head of natural resource equities at Cohen & Steers. “It’s really tough to be confident in anything.”
Stock pickers big and small have learned to discount the stop-and-start conflict after a furious selloff in the war’s violent opening act gave way to falling oil prices and bond yields. That peace trade subsequently helped markets boomerang to records.
But the new uncertainty arrives at a precarious moment, with Wall Street projecting above-target inflation in the months ahead and increasingly waffling over whether the cost of the AI boom will pay off.
The Dow Jones Industrial Average fell 1.1% Wednesday, dragged lower by American Express, Sherwin-Williams and Boeing. The S&P 500 fell by 0.3%, while the Nasdaq composite rebounded from early session lows to climb 0.2%. Stock indexes in Europe, Japan and Korea—all major energy importers—posted steep declines.
Oil traders shifted back to wartime footing. Brent crude futures, the global pricing benchmark, rose 5.2% to $78.02 a barrel, their highest price since Washington and Tehran in June agreed to a 60-day ceasefire. U.S. oil futures rose 4.4%.
The Treasury Department on Tuesday revoked a waiver that allowed Iran to sell oil on the global market, raising the specter of continued disruptions. On Wednesday, Trump threatened to extend U.S. strikes on Iranian targets and said he was considering reimposing a naval blockade to increase economic pressure on Tehran.
“Tanker traffic through the Strait of Hormuz has essentially stopped, which tells you more about risk perception right now than any statement from Washington or Tehran,” Jorge León, head of geopolitical analysis at consulting firm Rystad Energy, said in an email.
Although crude prices have retreated far below their wartime highs, expanding Ukrainian strikes on Russian refineries in recent weeks have helped keep global fuel prices elevated. U.S. diesel futures surged 11% Wednesday after the Kremlin announced a short-term ban of exports, pushing contracts up 72% this year. Gasoline futures have risen 82% in 2026.
That is hitting a U.S. economy that is already grappling with price pressures in other sectors, eating into Americans’ paychecks.
Bond traders Wednesday sold off Treasurys in response, pushing the 10-year yield to 4.567%, its highest level since May. The yield on 2-year Treasurys, which aligns closely with investors’ expectations for Fed policy, rose to its second-highest level of the year.
Futures markets on Wednesday implied a more than 80% likelihood that the central bank will raise interest rates at least once by year’s end. In newly released minutes from the central bank’s June meeting, Fed officials said “inflation remained elevated and had moved higher,” citing elevated oil prices, tariff costs, and a surge in demand for materials and labor linked to the nationwide AI build-out.
Still, given the amount of Americans’ wealth and spending power tied up in financial markets, some investors believe the central bank will be loath to hike rates in the face of moderately higher energy prices or even above-target inflation elsewhere. Doing so could boost borrowing costs for Amazon, Oracle and other tech companies now financing more of their AI investments with billions in debt, weighing on their shares.
“People say the market is too big to fail now. Perhaps that’s true,” said Brent Schutte, chief investment officer for Northwestern Mutual Wealth Management. “That’s why I have questions about whether the Federal Reserve will do what’s necessary to bring inflation down.”
As much of Wall Street on Wednesday tried to parse whether the latest round of fighting would last, some investors also began looking to markets’ next leghigher. Robert Edwards, chief investment officer of Edwards Asset Management, said the surge in oil prices, coupled with selloffs in stocks in bonds, mirrored early action in the Iran War that soon reversed.
“Any downside moves in stocks over the next few weeks are a buying opportunity,” he said.
Write to David Uberti at david.uberti@wsj.com and Shradha Dinesh at shradha.dinesh@wsj.com