Wall Street’s main indexes edged lower on Thursday as the Middle East conflict entered its sixth day, raising concerns of fresh inflation pressures that could complicate the Federal Reserve’s monetary policy decisions.
Helping limit the losses was a strong forecast from Broadcom that projected its artificial intelligence chip revenue would exceed $100 billion next year, sending shares of the chip designer up 2.9%.
Despite the U.S.-Israeli air war against Iran showing no signs of cooling off, Wall Street’s main indexes have fared better than their European and Asian counterparts this week, aided primarily by a rebound in technology stocks that bore the brunt of February’s selloff.
The tech-led recovery in the prior session helped the Nasdaq recover all weekly losses, putting it on track to close the week in positive territory if those gains hold through Friday.
Still, a prolonged disruption in shipping through the strategic Strait of Hormuz is likely to further fuel inflation pressures through energy and shipping costs, at a time when U.S. tariffs have already complicated the Fed’s monetary policy outlook.
Any signs that crude prices could hit $100 a barrel would be worrisome for markets and investors were on the lookout for reports that the conflict could be nearing its end.
Policymakers have broadly acknowledged the need to wait and gauge the impact on the economy, although investors are anticipating price pressures to delay a 25-basis-point interest rate cut by the Federal Reserve to September from July, according to LSEG-compiled data.
“For the past couple of years, bringing inflation down has been the Fed’s entire focus, and they were finally making progress. But if energy stays expensive, inflation could start climbing again and that would force the Fed to rethink its plans,” said Adam Sarhan, chief executive of 50 Park Investments.
At 09:51 a.m. ET, the Dow Jones Industrial Average fell 390.80 points, or 0.83%, to 48,338.36, the S&P 500 lost 16.75 points, or 0.25%, to 6,852.03 and the Nasdaq Composite lost 0.71 points to 22,806.77.
The healthcare sector led losses on the S&P 500 with a 1.6% fall.
The energy index gained 0.7%, with ConocoPhillips and Valero Energy up about 2%.
The CBOE volatility index was up 0.9 points at 22.08, reflecting broader investor caution, while the rate-sensitive Russell 2000 index was down 1%.
Travel stocks that are the most sensitive to energy prices were down. Delta Air lines slipped 3.3%, while Royal Caribbean Cruises dipped 0.6%.
On the flip side, booking stocks such as Booking Holdings and Expedia shot up 11% and 8% to the top of the S&P 500. A report from The Information said OpenAI was scaling back on-platform shopping checkout plans for ChatGPT, which could mark an end to disruption worries for internet marketplace businesses.
A prolonged conflict could also disrupt supplies of key semiconductor manufacturing materials and impede data center deployment by AI leaders in the Middle East. Chip stocks were mixed, with Nvidia down 0.3%, while Marvell Technology rose 1.3%.
Among others, Trade Desk surged 22.5% after a report that OpenAI held early talks with the advertising technology firm to sell ads.
Meanwhile, data showed the number of Americans filing new applications for unemployment benefits was unchanged last week. Fresh Fed remarks from U.S. Fed Vice Chair Michelle Bowman are due later in the day, ahead of the crucial non-farm payrolls report on Friday.
Declining issues outnumbered advancers by a 2.48-to-1 ratio on the NYSE, and by a 1.63-to-1 ratio on the Nasdaq.
The S&P 500 posted 4 new 52-week highs and 2 new lows while the Nasdaq Composite recorded 17 new highs and 33 new lows.
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