(Updates with index/price moves and Fed/company/geopolitical news from the first paragraph.)
US equity indexes fell amid expectations of a tightening bias from the Federal Reserve and as Iran's surprise missile attack on regional neighbors escalated war tensions ahead of big-tech quarterly results post-bell.
The Dow Jones Industrial Average declined 1.4% to 51,986.1, with the Nasdaq Composite down 0.7% to 24,697.2 and the S&P 500 lower by 0.7% to 7,376.8 after midday Wednesday. All sectors except energy, consumer staples, and consumer discretionary declined. Industrials, materials, and technology led the steepest decliners.
Microsoft (MSFT), Meta Platforms (META), Lam Research (LRCX), Arm (ARM), and Qualcomm (QCOM) will report earnings after the bell on Wednesday, and investors will focus on what these companies will say about capital expenditures related to artificial intelligence and the state of free cash flows.
Among companies with a market capitalization of more than $200 billion, eight of the 10 worst intraday performers were from the technology sector, according to data compiled by Finviz. VanEck Semiconductor ETF (SMH), with net assets of $77.2 billion, slumped 3.1% after midday.
The Fed is likely to remain on hold at the 3.5% to 3.75% target range in its Wednesday policy announcement, according to the CME FedWatch tool. However, the probability that the target rate for fed funds will increase to 4.25%-4.5% in December jumped to 17% as of Wednesday afternoon from 9% a month ago, implying a significant tightening bias among some market participants.
The tightening bias may have to be communicated more subtly through a more casual or veiled tone, Thierry Wizman, global foreign-exchange and rates strategist at Macquarie, said in a note. Alternatively, Fed Chair Kevin Warsh may have to accommodate the views of the more hawkish majority in his press conference on Wednesday by making his views more strident about promoting price stability "without delay," he said.
"And if that isn't enough, the more hawkish bias will spill out more forcefully in the comments and appearances by Fed officials in the days after today's FOMC meeting," Wizman said in the note. "But one way or another - including, perhaps, through dissent - the Fed's emerging tightening bias will find its way into the market today or the next few days."
In geopolitical news, President Donald Trump said Iran will be hit hard, according to Fox News.
The US Central Command said it joined Saudi Arabian Armed Forces to conduct strikes in Iraq against Iran-aligned terrorists that the Islamic Revolutionary Guard Corps directed to attack US forces and Saudi energy infrastructure.
The front-month US West Texas Intermediate jumped 6.8% to $84.63 a barrel, and global benchmark North Sea Brent surged 7.6% to $90.45 a barrel.
US Treasury yields jumped, with the 10-year up 3.5 basis points to 4.64% and the two-year higher by 4.5 basis points to 4.32%.
In precious metal markets, gold futures were steady at $4,039.2, and silver futures rose 0.8% to $57.99.