Stocks on Wall Street slid early Tuesday as investors reacted to the intensifying war between Israel and Iran and disappointing retail sales data — stoking fresh concerns about global stability and the strength of consumer demand.
The Dow Jones Industrial Average fell 149.25 points, or 0.35%, to 42,365.84 by mid-morning. The S&P 500 declined 23.98 points, or 0.40%, to 6,009.13, while the tech-heavy Nasdaq shed 87.46 points, or 0.44%, to 19,613.75.
The pullback came as traders assessed the growing possibility of a broader conflict in the Middle East and weighed the impact of softer-than-expected US retail figures released earlier in the day.
Retail sales dropped 0.9% in May, falling short of economists’ forecasts and signaling that consumers may be pulling back amid lingering inflation and economic uncertainty, according to fresh data released by the Commerce Department.
Weakness in key categories such as autos, gas, and building materials contributed to the slump, offsetting modest gains in online shopping and miscellaneous retail.
Despite the broader market weakness, small-cap stocks saw a boost, with the Russell 2000 rising 23.62 points, or 1.12%, to 2,124.13. The index, which often reflects domestic economic sentiment, appeared to buck the trend of larger indexes in early trading.
Meanwhile, the CBOE Volatility Index (VIX) — Wall Street’s “fear gauge” — jumped 4.08% to 19.89, reflecting heightened investor anxiety as the Israel-Iran conflict escalates and market sentiment becomes more fragile.
The combination of international turmoil and soft economic data has raised fresh doubts about the Federal Reserve’s next steps. While inflation has moderated in recent months, the central bank remains cautious amid signs of consumer weakness and geopolitical volatility.
Traders will be closely watching for additional commentary from Fed officials and upcoming economic indicators for clues about potential rate adjustments heading into the second half of the year.
US crude climbed 1.21% to $72.64 per barrel, extending gains from last week as markets priced in potential disruptions to energy supply chains.
The yield on the US 10-year Treasury note slipped to 4.419%, down 3.5 basis points, reflecting a flight to safety amid heightened uncertainty.
Bond yields typically fall when investors seek refuge from riskier assets like equities.
Retail sales dropped 0.9%, exceeding the 0.6% decline projected by economists surveyed by Dow Jones.
The figures are seasonally adjusted but not inflation-adjusted and follow a 0.1% dip in April.
The report comes against a backdrop of rising geopolitical tensions and concerns about potential tariffs.
Sales excluding automobiles also disappointed, sliding 0.3%, compared to expectations for a 0.1% increase.
However, a separate measure that strips out categories like auto sales, building materials and gas stations — known as the “control group” used in GDP calculations — rose 0.4%, offering a modest sign of resilience in core consumer activity.
Spending at building materials and garden centers tumbled 2.7% while lower energy costs pushed receipts at gas stations down 2%. Auto and parts dealers saw a 3.5% drop, and spending at bars and restaurants declined 0.9%.
There were some bright spots: miscellaneous store retailers posted a 2.9% gain, online sales climbed 0.9% and furniture store revenue increased 1.2%.
Economists had hoped for more resilient numbers ahead of the summer travel season, but the latest figures suggest momentum may be fading.
Investors will be closely watching the Federal Reserve’s next move as it continues to weigh inflation against signs of economic cooling. The central bank has held rates steady in recent months, but markets remain on edge as policymakers balance conflicting data points.
Together, geopolitical instability, economic softness, and inflation pressures have created a cocktail of volatility that may continue to weigh on markets in the days ahead.