Wall Street drops as oil prices, Treasury yields rise

US stock markets edged lower on Tuesday as rising crude oil prices and elevated Treasury yields weighed on investor sentiment ahead of the Federal Reserve's upcoming interest-rate decision.

As of 10:30 a.m. Eastern Time, the S&P 500 fell 0.4%. The Dow Jones Industrial Average was down 1% and the Nasdaq Composite was 0.6% lower.

At the open, the Dow Jones Industrial Average fell 118.0 points, or 0.23%, to 52,303.24. The S&P 500 fell 7.7 points, or 0.10%, to 7,612.3​, while the Nasdaq Composite dropped 46.2 points, or 0.18%, to 26,140.227.

Oil prices climb amid Middle East tensions

Crude prices moved higher as escalating tensions in the Middle East added to concerns about potential disruptions to global energy supplies.

Brent crude, the international benchmark, climbed 1.91% to $107.69 a barrel after trading between $105.10 and $108.43 earlier in the session.

US crude was also higher, gaining 2.26% to $103.67 a barrel.

The increase in oil prices has added another layer of uncertainty for investors, particularly as markets assess the potential impact of higher energy costs on inflation.

Treasury yields hit multi-year highs

Bond markets also remained under pressure as investors continued to worry about persistent inflation and the large size of the US government's debt burden.

The yield on the benchmark 10-year US Treasury note briefly reached 5.02%, its highest level in 19 years, before easing somewhat.

Higher oil prices could further complicate the inflation outlook by increasing energy and transportation costs. The development comes just ahead of the Federal Reserve's monetary policy decision, making the direction of inflation and interest rates a key focus for investors.

AI concerns

Markets are also weighing renewed concerns surrounding the rapid development of artificial intelligence.

Investors are considering comments from Anthropic CEO Dario Amodei, who has called for a slowdown in AI development amid concerns that increasingly powerful AI agents could behave unpredictably or potentially go rogue.

Fed rate hike expectations remain high

Attention is now firmly focused on the Federal Reserve's interest-rate decision scheduled for Wednesday.

Futures markets were pricing in a 93% probability of a rate hike, reflecting expectations that the central bank could maintain a tighter monetary policy stance in response to inflationary pressures.

Key Stock Movers

Some major semiconductor stocks recovered after Monday's selloff.

Nvidia shares rose 1.1%, while Advanced Micro Devices gained 2.4%, providing some relief to the technology sector. The rebound came after chip stocks faced selling pressure in the previous session amid broader concerns surrounding the outlook for AI-related companies.

GE Vernova shares advanced 1%, recovering a portion of the previous day's steep decline.The stock had plunged 8.6% on Monday, making Tuesday's gain a modest recovery from the sharp selloff.

Investors continued to assess the company's prospects alongside broader movements in energy and technology-related shares.

Dave & Buster's Entertainment was among the notable decliners. The company's stock dropped 7.3% after it reported quarterly results that came in weaker than analysts had expected.

Bullion

Gold prices fell on Tuesday, pressured by a stronger US dollar and elevated Treasury yields.

As of 9:23 a.m. EDT (1323 GMT), spot gold was down 0.3% at $4,285.88 per ounce. US gold futures fell 0.6% to $4,325.80.

Among other metals, spot silver rose 0.7% to $63.64, platinum gained 0.8% to $1,773.13 and palladium was up 0.5% at $1,299.76.