US Stocks: Wall Street Indexes Fall on Worries About Middle East War, Interest Rates

​Wall Street indexes lost ground in Tuesday's volatile ⁠session as investors swayed between fears of rising oil prices and hopes for a resolution to the U.S.-Israeli war on Iran as U.S. President Trump claimed progress in talks even as reports ‌suggested that more American troops were headed to the Middle East.

U.S. Treasury yields rose on uncertainty about the war and a weak auction of 2-year Treasury notes, also adding pressure to equity markets.

Indexes regained some ground after Trump told reporters that the ​United States was talking to "the right people" in Iran in order to reach an agreement to end hostilities and that Iran has agreed they will never have nuclear weapons. But reports that the Pentagon is expected to send thousands of ​more ​troops from the elite 82nd Airborne Division to the Middle East caused some concerns that the war could drag on and keep oil prices high.

Wall Street indexes on Monday had marked their biggest one-day gain since February 6 as oil prices fell after Trump had postponed strikes against Iranian power plants and announced talks with Iran even as Tehran denied negotiations with the ⁠U.S. But energy prices rose on Tuesday with crude oil futures settling up more than 4%.

"Stocks are trying to find their footing as investors are keeping one eye on social media and the other eye on every headline. We're very short-term oriented," said Carol Schleif, chief market strategist, BMO Private Wealth.

"Markets are trying to hold onto the optimism they had yesterday. They're so ready to move beyond war talk even if it's not 100% settled," said Schleif but she added, "There's a lot of nervousness. People are watching oil and watching interest rates and worrying do we go higher for longer on both energy and interest rates because that could start ​negatively impacting growth."

Kevin Gordon, head of macro research & ‌strategy at the Schwab Center ⁠for Financial Research in New York ⁠also pointed to a "double whammy" of higher oil prices and higher rates as a "stagflationary backdrop, which, needless to say, is not a positive backdrop for the stock market."

"This is about as low a conviction environment as you ​can get. I don't know anyone who wants to be significantly overweight risk or underweight risk heading into this because of days like yesterday or even days ‌like today," said Schwab's Gordon.

The Dow Jones Industrial Average fell 84.41 points, or 0.18%, to 46,124.06, the S&P 500 lost 24.63 points, or 0.37%, ⁠to 6,556.37 and the Nasdaq Composite lost 184.86 points, or 0.84%, to 21,761.89.

Among the 11 S&P 500 major industry sectors four closed lower. Energy led the gainers with a 2.05% advance while communication services led losses, with a 2.50% decline, followed by a 0.76% drop in technology.

Meanwhile, private credit concerns resurfaced after a report that Ares Management limited redemptions at 5% at its private credit fund, along with Apollo Global Management , as withdrawal requests surged. Ares shares ended down 1% while Apollo added 0.7%. Their peers Blackstone and Carlyle fell 1.25% and 0.9% respectively. Peers Blackstone and Carlyle were off 2% and 0.8% respectively.

Earlier a survey showed U.S. business activity slowed to an 11-month low in March as the Middle East war raised prices for energy products and other inputs.

Higher oil prices have revived inflation jitters and complicated the interest rate outlook for central banks. The U.S. Federal Reserve struck a hawkish tone last week, projecting only one reduction in 2026.

Traders are no longer pricing in any rate cuts this year, compared with two reductions expected before the Middle East conflict erupted. Expectations for rate hikes nudged higher amid escalating tensions last week and the latest bets were for a more than 30% chance of hike by year-end according to ‌CME's FedWatch Tool.

Among individual movers, shares of Jefferies rose 2.5% after the Financial Times reported that Japan's Sumitomo Mitsui Financial Group is working ⁠on plans for a possible takeover of the investment bank.

Shares in Estee Lauder tumbled 9.8% after the cosmetics company said it was in ​talks for a potential merger with Spanish beauty group Puig Brands.

Barclays lifted its 2026 year-end target for the S&P 500 index to 7,650 from 7,400, citing stronger earnings expectations that outweigh macro risks like Middle East tensions, AI-driven disruption and stress in private credit.

Volume was relatively light on U.S. exchanges with 17.94 billion shares changing hands compared with the 20.72 billion moving average for the last 20 sessions.

Declining issues outnumbered advancers by a 1.31-to-1 ratio on the NYSE where ​there were 150 new ‌highs and 199 new lows. On the Nasdaq, 1,857 stocks rose and 2,936 fell as declining issues outnumbered advancers by a 1.58-to-1 ratio. The S&P 500 posted ⁠20 new 52-week highs and 19 new lows while the Nasdaq Composite recorded 47 ​new highs and 186 new lows.

​