(Updates with index/price moves, macroeconomic data, and political news from the first paragraph.)
US equity indexes fell while volatility jumped with crude oil and government bond yields after President Donald Trump warned of more strikes on Iran after saying a peace deal signed in June "is over"
The Dow Jones Industrial Average dropped 1.2% to 52,294.8, with the Nasdaq Composite down 0.2% to 25,760.5, and the S&P 500 lower by 0.5% to 7,469.1 after midday Wednesday.
Energy was the standout gainer, with Valero Energy (VLO), Occidental Petroleum (OXY), and Phillips 66 (PSX) leading the S&P 500. Chevron (CVX) was the Dow's top gainer. On Nasdaq, the top spot went to Baker Hughes (BKR).
The CBOE Volatility Index jumped 6% to 17 after Trump said, per a Bloomberg report, the US would probably launch further strikes on Iran and could resume a blockade on the country's ports.
American forces launched strikes against more than 80 targets in Iran, including air defense systems, command-and-control networks, coastal radar installations and anti-ship missile capabilities, in response to recent attacks on commercial shipping in the Strait of Hormuz, according to a Deutsche Bank note on Wednesday. The strikes were accompanied by the US Treasury's decision to revoke a waiver that had allowed new Iranian oil sales, it said.
"We hit them very hard last night," Trump said Wednesday on the sidelines of a summit of the North Atlantic Treaty Organization leaders in Ankara, Turkey. "Probably hit them hard again tonight."
The front-month global benchmark North Sea Brent soared 7% to $79.37 a barrel, and the US West Texas Intermediate surged 6.9% to $75.29 a barrel.
After the burial ceremony of Iran's Supreme Leader Ayatollah Ali Khamenei - killed by an Israeli strike at the outset of the conflict - ends on July 9, both warring sides could adopt an even harder stance, driving a further uptick in geopolitical risk premiums, according to a note from Rystad Energy.
"Even if no sustained physical disruption materializes, uncertainty around vessel safety, insurance costs, potential delays, and the risk of further retaliation is likely to keep volatility elevated in the near term," the Rystad note said.
US Treasury yields rose, reflecting market concern that higher crude oil prices, driven by a supply shock, will make it harder for the Federal Reserve to fight inflation. The two-year yield jumped 5.8 basis points to 4.22%, and the 10-year climbed 6.2 basis points to 4.59%.
Inflation concerns also sent gold futures down 2.7% to $4,045.6 and silver futures lower by 5.5% to $57.98.
In economic news, the minutes from the Fed's policy meeting on June 16-17 are due at 2 pm ET. Investors will parse the views on the direction of interest rates at a time when the market is pricing in hikes. The probability of a 25-basis-point increase in rates is the highest among all other policy outcomes in September, October, and December, the CME FedWatch tool showed Wednesday.
Meanwhile, in company news, Apple (AAPL) said Wednesday that Broadcom (AVGO) will produce chips for use in the iPhone maker's products in a deal likely worth more than $30 billion.