U.S. stock indexes experienced a notable downturn on Wednesday, with the Nasdaq 100 pulling back from a fresh record high. The broader market faced pressure as overnight clashes between the United States and Iran sent West Texas Intermediate (WTI) crude oil prices up by more than 2% to a 1.5-week peak, casting doubt on peace initiatives and potentially impacting the Strait of Hormuz.
The S&P 500 Index ($SPX) closed down 0.74%, the Dow Jones Industrial Average ($DOWI) fell 1.21%, and the Nasdaq 100 Index ($IUXX) registered a decline of 0.29%. This sentiment was mirrored in futures markets, with June E-mini S&P futures (ESM26) down 0.78% and June E-mini Nasdaq futures (NQM26) off by 0.32%.
The geopolitical developments involving Iran significantly influenced market sentiment. Reports indicated that US forces intercepted Iranian ballistic missiles and drones targeting neighboring Gulf states, a move that heightened regional tensions. This escalation directly impacted crude oil prices, which surged, and raised concerns about the potential for increased inflation expectations.
Adding to the market’s pressure was weakness observed in specific sectors, including software companies, cybersecurity firms, and private credit stocks. Several prominent software and cybersecurity companies saw significant declines. Datadog (DDOG), Atlassian Corp (TEAM), and ServiceNow (NOW) each closed down more than 7%. International Business Machines (IBM) led Dow Jones Industrial losers, falling over 6%. Palantir Technologies (PLTR) dropped more than 6%, and Oracle (ORCL) declined over 5%. Salesforce (CRM) was down more than 4%, while Autodesk (ADSK) and Intuit (INTU) each fell over 3%. Microsoft (MSFT) and Adobe Systems (ADBE) closed down more than 2%, and Workday (WDAY) saw a decline of over 1%.
In the cybersecurity space, Okta (OKTA) experienced a 7% drop, and Zscaler (ZS) fell 6%. Palo Alto Networks (PANW) closed down over 5% despite reporting better-than-expected quarterly earnings, as it failed to meet elevated analyst expectations. Cloudflare (NET) and CrowdStrike Holdings (CRWD) were down more than 2%, and Fortinet (FTNT) declined over 1%.
The private credit sector also faced headwinds, with redemption requests for Cliffwater’s private credit fund weighing on alternative asset stocks. Carlyle Group (CG) closed down more than 4%, while Ares Management (ARES), KKR & Co (KKR), Blackstone (BX), and Blue Owl Capital (OWL) each fell over 3%. Apollo Global Management (APO) and BlackRock (BLK) were down more than 2%.
Despite the broader market weakness, certain segments of the technology sector showed resilience, particularly those involved in AI infrastructure. Marvell Technology (MRVL) was a standout performer, rising over 3% and extending a significant surge from the previous day. This positive momentum in chipmakers was partly fueled by Nvidia CEO Jensen Huang’s prediction that Marvell could be the next company to reach a $1 trillion valuation.
Other chipmakers and AI-infrastructure related stocks also saw gains. Sandisk (SNDK) closed up over 6%, leading Nasdaq 100 gainers, with Western Digital (WDC) following with a gain of over 5%. Intel (INTC), Advanced Micro Devices (AMD), and ON Semiconductor (ON) each rose more than 4%. Analog Devices (ADI), KLA Corp (KLAC), and Qualcomm (QCOM) were up over 3%, and Applied Materials (AMAT), ARM Holdings Plc (ARM), and Lam Research (LRCX) closed up more than 2%.
Economic data released on Wednesday offered some supportive signals for the U.S. economy. The May ADP employment change came in at 122,000, slightly exceeding expectations of 120,000 and marking the largest increase in 16 months. The May ISM services index rose to 54.5, surpassing the expected 53.8. Additionally, April factory orders increased by 4.8% month-over-month, better than the anticipated 4.6% and representing the largest monthly gain in 11 months.
However, the Federal Reserve’s Beige Book report presented a more hawkish outlook, indicating slight to moderate economic growth across most districts through May 27. The report noted little change in employment and widespread reports of higher inflation pressures. New York Fed President John Williams reiterated a neutral stance on monetary policy, stating that interest rates are appropriately positioned and that he sees no immediate need for adjustments.
In overseas markets, performance was mixed. The Euro Stoxx 50 closed down 0.89%, while China’s Shanghai Composite gained 0.22%. Japan’s Nikkei Stock Average, however, rallied to a new record high, closing up 2.50%.
Interest rate markets saw pressure on Wednesday. September 10-year T-notes (ZNU6) closed down 8 ticks, pushing the 10-year T-note yield up by 4.6 basis points to 4.489%. This move was attributed to the escalating US-Iran tensions, which boosted crude oil prices and inflation expectations, as well as the stronger-than-expected U.S. economic data, which are considered hawkish factors for Federal Reserve policy.
European government bond yields also moved higher, with the 10-year German Bund yield climbing to a 1.5-week high of 3.042% and the 10-year UK gilt yield reaching a similar 1.5-week high of 4.939%.
In terms of individual stock movers, Global Payments (GPN) fell over 8% after an analyst downgrade citing exposure to Middle East travel. Ulta Beauty (ULTA) dropped more than 4% on concerns about its second-half outlook. Gitlab (GTLB) declined over 2% following an announcement of workforce reductions and country exits. On the upside, Medtronic Plc (MDT) rose over 6% after reporting better-than-expected Q4 revenue. GameStop (GME) saw a gain of over 6% after reporting increased net sales and a significant share repurchase authorization. Meta Platforms (META) closed up more than 4% on news of its new AI agent for business customer interactions.
