The broader S&P 500 and Dow Jones Industrial Average also posted notable losses, each falling more than 1% during the session. Thursday’s decline marked the steepest single-day drop for both the Nasdaq and the S&P 500 since late January, underscoring the fragility of investor sentiment.
Uncertainty surrounding the conflict has intensified in recent days. Donald Trump warned that Iran must agree to U.S. terms or face continued military pressure, even suggesting the possibility of targeting Iran’s oil infrastructure. In response, Iranian officials dismissed Washington’s proposal as “one-sided,” though they indicated diplomatic channels remain open.
Markets found slight relief after the close when Trump signaled a temporary pause in attacks on Iranian energy facilities, reportedly at Tehran’s request, and expressed optimism about ongoing negotiations. The announcement helped stock futures recover modestly, though not enough to offset earlier losses.
Oil prices surged earlier in the day amid fears of supply disruptions, particularly around the critical Strait of Hormuz, a vital corridor for global energy shipments. U.S. crude rose sharply, while Brent crude posted even stronger gains, amplifying inflation concerns and weighing heavily on equities.
The spike in energy prices erased optimism from the previous session, when hopes of de-escalation had briefly lifted markets. Analysts say the rapid shifts in geopolitical signals are making it difficult for investors to maintain confidence.
Market strategists point to a growing sense of unpredictability. The pace of developments and conflicting narratives have created what some describe as a “fog of war,” prompting many investors to retreat from equities in favor of safer assets.
By the close, the Dow had dropped 469 points, while the S&P 500 and Nasdaq fell by 1.74% and 2.38%, respectively. The Nasdaq is now down more than 10% from its recent peak—meeting the technical definition of a correction, which signals a significant pullback from prior highs.
Sector performance reflected the broader risk-off mood. Energy stocks were among the few gainers, benefiting from rising oil prices, alongside modest advances in defensive utilities. Meanwhile, communication services and technology sectors led the declines.
Shares of Meta Platforms and Alphabet Inc. came under pressure following adverse legal rulings in cases alleging harm to children from social media platforms. Meta dropped करीब 8%, while Alphabet lost over 3%.
Technology stocks were further dragged down by weakness in semiconductor companies, with the Philadelphia Semiconductor Index tumbling sharply. AI chipmaker Nvidia was among the notable decliners.
Adding to investor concerns, the Organisation for Economic Co-operation and Development warned that the Middle East conflict could derail global economic growth and significantly drive up inflation, especially if oil flows through key routes are further disrupted.
The evolving situation has also complicated expectations for monetary policy. Traders are increasingly betting that the Federal Reserve will hold interest rates steady for longer, with earlier projections of rate cuts this year now largely priced out.
Economic data released Thursday showed a slight uptick in U.S. jobless claims, suggesting the labor market remains stable. This resilience gives the Fed more flexibility to maintain its current policy stance while assessing the broader economic impact of geopolitical risks.
Despite the turmoil, trading volumes remained relatively subdued compared to recent averages, indicating a cautious rather than panicked market response. However, market breadth was weak, with declining stocks significantly outnumbering gainers across major exchanges.
With geopolitical uncertainty persisting and inflation risks rising, analysts warn that further volatility may lie ahead, particularly if diplomatic efforts fail to yield meaningful progress.