Wall Street’s major indexes closed lower on Thursday, reversing earlier gains as renewed uncertainty over a US-Iran peace deal rattled investors. The S&P 500 fell 0.38%, the Dow Jones Industrial Average dropped 0.63%, and the Nasdaq 100 slipped 0.12%, despite all three touching new intraday highs earlier in the session.
Geopolitical Tensions Resurface
The afternoon selloff was triggered by reports that the Trump administration is considering restarting military operations to guide commercial ships through the Strait of Hormuz, after pausing the plan earlier this week. The development dashed hopes for a swift diplomatic resolution between Washington and Tehran, pushing crude oil prices sharply higher after an initial 4% decline. West Texas Intermediate crude settled little changed on the day but recovered most of its losses as the market reassessed supply risks.
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According to the Wall Street Journal, Saudi Arabia and Kuwait have lifted restrictions on US military use of their bases and airspace, following Iranian missile and drone attacks on the UAE in response to earlier US efforts to reopen the strategic waterway. The Strait of Hormuz remains effectively closed, disrupting about one-fifth of the world’s oil and liquefied natural gas transit. Goldman Sachs estimates the disruption has already drawn down nearly 500 million barrels from global crude stockpiles, with the figure potentially reaching 1 billion barrels by June.
Economic Data Offers Little Support
Thursday’s economic releases were mostly stronger than expected, but failed to sustain the market’s early momentum. Weekly initial jobless claims rose to 200,000, below the 205,000 consensus, while continuing claims unexpectedly fell to a 2.25-year low of 1.766 million. First-quarter nonfarm productivity increased 0.8%, beating expectations, and unit labor costs rose 2.3%, slightly below forecasts. Construction spending rose 0.6% month-over-month, double the anticipated rate, and consumer credit surged by $24.855 billion, the largest increase in over three years.
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However, hawkish comments from Federal Reserve officials weighed on sentiment. Boston Fed President Susan Collins said interest rates should remain at current “mildly restrictive” levels, warning that a significant upward move in inflation would require policy reassessment. Cleveland Fed President Beth Hammack described the FOMC’s signal that the next rate move will be a cut as misleading, adding that her baseline expects rates to remain on hold for an extended period.
Tech and AI Stocks Diverged
Earnings season continued to deliver surprises, with software stocks outperforming while chipmakers and AI-infrastructure names slumped. Datadog surged more than 31% after reporting quarterly revenue of $1.01 billion, above the $957.8 million consensus, and raising its full-year revenue guidance well above analyst expectations. Fortinet jumped over 20% on strong billings and an upgraded forecast, lifting cybersecurity stocks including Zscaler, CrowdStrike, and Palo Alto Networks.
Conversely, ARM Holdings fell more than 10% after reporting royalty revenue below estimates, dragging down Marvell Technology, Applied Materials, and other semiconductor stocks. Advanced Micro Devices, Lam Research, and Broadcom each lost more than 3%.
Interest Rates and Global Markets
Ten-year Treasury note yields rose 4 basis points to 4.389%, recovering from a 1.5-week low as crude’s rebound and the strong labor data reinforced expectations that the Fed will maintain its current stance. Markets are pricing in just a 4% chance of a quarter-point rate cut at the June 16-17 FOMC meeting.
Overseas, European stocks fell, with the Euro Stoxx 50 closing 0.90% lower. Japan’s Nikkei surged to a record high, gaining 5.58%, while China’s Shanghai Composite edged up 0.08% to a two-month high.
Conclusion
Thursday’s market reversal underscores how quickly geopolitical developments can overshadow strong economic data and corporate earnings. With the Strait of Hormuz crisis unresolved and the Fed signaling patience on rates, investors face a complex field where supply-chain risks and monetary policy uncertainty remain front and center. The coming days, particularly Iran’s expected response via Pakistan, will be critical in determining whether the current volatility deepens or subsides.
FAQs
Q1: Why did stocks fall if economic data was strong?
Stocks reversed earlier gains after reports that the US may resume military operations to reopen the Strait of Hormuz, reigniting fears of a broader conflict with Iran. This geopolitical uncertainty overshadowed positive economic reports on jobless claims, productivity, and consumer credit.
Q2: How is the Strait of Hormuz situation affecting oil prices?
The strait remains effectively closed, disrupting about 20% of global oil and LNG transit. Goldman Sachs estimates nearly 500 million barrels have been drawn from global stockpiles, with the potential to reach 1 billion barrels by June if the blockade continues, keeping upward pressure on crude prices.
Q3: What did Fed officials say that impacted markets?
Boston Fed President Collins and Cleveland Fed President Hammack both advocated for keeping interest rates at current levels, pushing back against market expectations for imminent rate cuts. Their hawkish tone weighed on both stocks and bonds.
