(Updates with index/price moves and company/geopolitical news from the first paragraph.)
US equity indexes fell as the 10-year Treasury yield touched a 19-year high ahead of a widely anticipated interest rate increase and after crude oil jumped.
The Nasdaq Composite fell 0.7% to 25,997.3, the S&P 500 declined 0.4% to 7,586.1, and the Dow Jones Industrial Average dropped 0.8% to 52,001.7 after midday Tuesday. All sectors except energy and materials retreated. Consumer discretionary and communication services led decliners.
The Federal Reserve kicked off its two-day monetary policy meeting on Tuesday. Ahead of the Fed's announcements on Wednesday, interest rate traders are now pricing in a 93% probability that the central bank will raise its target rate by 25 basis points, up from 33% a month ago, according to the CME FedWatch tool.
Morgan Stanley expects another interest-rate increase in December, following a move up on Wednesday, and then pauses as the US investment bank anticipates inflation will moderate, according to a research note.
"We see arguments for both a hike and a hold, but signs of second-round effects from energy prices, strong demand tied to AI-related investment, a neutral rate that is possibly temporarily higher, and concerns about credibility mean the balance of risks now argues for a somewhat more restrictive policy," the research note said. "We expect the [Summary of Economic Projections] to show a median of two hikes this year followed by one cut each in 2027 and 2028."
Most US Treasury yields rose. The 10-year yield jumped 4.9 basis points to 5.01%, earlier touching 5.04%, the highest since 2007. The two-year yield advanced 2.5 basis points to 4.66%.
Yemen's Iran-aligned Houthis launched a new wave of attacks on Saudi Arabia and were digging into positions on the western coast of Yemen along the Red Sea, Yemeni officials said, as urgent deliberations took place in Riyadh over how to respond to their lightning advance, according to a Reuters news report.
Iran's semi-official Fars news agency reported that the Iran Revolutionary Guards Corps has shot down another US-developed MQ-1 drone over Hormuz, Al Jazeera, a Middle Eastern broadcaster, said. This is the third such drone downed in the area on Tuesday, the report said, citing the IRGC.
The front-month US West Texas Intermediate crude oil contract surged 4.5% to $105.96 per barrel, and the global benchmark North Sea Brent jumped 3.1% to $108.76 per barrel.
Gold futures fell 0.4% to $4,336.9, and silver futures slipped 0.3% to $63.95.
In company news, Axon Enterprise (AXON) slumped 11%, the worst performer on the S&P 500, after the company said it intends to offer $1 billion of 0% convertible senior notes due 2031 in a registered public offering.
Goldman Sachs' (GS) asset management alternatives unit has raised $11.7 billion across its newest private equity funds and other vehicles, Reuters reported Tuesday, citing a statement and an interview with an executive. Goldman shares declined 2.8%, the worst performer on the Dow.