US equity indexes fell after President Donald Trump threatened Iran with a "very hard" attack in the aftermath of slow progress in peace negotiations and the recent downing of an American Apache helicopter near the Strait of Hormuz.
The Nasdaq Composite dropped 1.3% to 25,349.4, with the S&P 500 down 1% to 7,311, and the Dow Jones Industrial Average lower by 1.3% to 50,194.2 after midday Wednesday.
Industrials, consumer discretionary, and technology led the decliners, while energy and consumer staples were among the top gainers.
Iran is taking "too long to negotiate a deal," and "now they will have to pay the price," Trump said Wednesday. The US launched airstrikes early Wednesday against Iran after the US president blamed Tehran for the crash of an American attack helicopter, and Iran fired back at countries in the region, according to a report from the Associated Press.
Iran on Tuesday shot down a US helicopter, and the US responded with attacks on Iranian targets. According to the Wall Street Journal, Iran also attacked US allies in the Persian Gulf region, as well as Jordan.
Meanwhile, US commercial crude oil stocks, excluding inventories in the Strategic Petroleum Reserve, fell by 7.2 million barrels during the week ended June 5, following an 8.0-million-barrel decline in the previous week and compared with a 2.2-million-barrel decrease expected in a Bloomberg-compiled survey.
West Texas Intermediate crude oil futures jumped 3.9% to $91.62, and Brent crude futures climbed 3.2% to $94.36, trading close to session highs.
In precious metals, gold futures slumped 3.1% to $4,154.8.
In economic news, the US seasonally adjusted consumer price index, a measure of inflation, rose by 0.5% in May, as expected, following a 0.6% increase in April, according to data released Wednesday by the Bureau of Labor Statistics. Core CPI, which excludes food and energy prices, rose by 0.2%, below the consensus estimate for a 0.3% increase. Core CPI rose by 0.4% in April.
The year-over-year rates for overall and core CPI increased to 4.2% and 2.9%, respectively, from 3.8% and 2.8% in the previous month. The headline rate was the strongest since April 2023, according to data compiled by Finviz.
"This was the inflation report that Chair Warsh was dreaming about," Derek Holt, head of capital market economics at Scotiabank, wrote in a note. "Soft underlying inflation and details motivated a slightly lower US 2-year Treasury yield. Markets may be holding back in their reaction, perhaps because escalating tensions in the Middle East are overshadowing data, with conflict and supply chain challenges likely to persist."
Most US Treasury yields rose, with the 10-year up 1.2 basis points to 4.54% and the two-year little changed at 4.13%.
The market composite index, which measures loan application volume, climbed 11% in the week ended Friday on a seasonally adjusted basis, compared with the prior week's 2.5% decline. On an unadjusted basis, applications increased 21%.
"Both refinance and purchase applications rebounded coming out of the Memorial Day holiday week," said Mike Fratantoni, the Mortgage Bankers Association's chief economist.