The S&P 500 fell 0.74% to close at 7,553.68, snapping a nine-session winning streak as a renewed climb in oil prices and Treasury yields weighed on equities. The retreat pulled the benchmark back from the record highs it had set earlier in the week, as investors reacted to the latest escalation between the United States and Iran.
The selloff followed a fresh round of strikes in the Gulf, where Iran hit Kuwait International Airport and the United States carried out additional strikes on Qeshm Island, developments that pushed crude higher and revived the risk premium that had recently eased. Higher energy costs ripple quickly through inflation expectations, complicating the outlook for both prices and policy.
Bond markets amplified the pressure on stocks. The yield on the 10-year Treasury note approached 4.5% and the 30-year neared 5%, levels that raise borrowing costs across the economy and make richly valued equities, particularly in technology, less attractive by comparison. Rising yields reflected concern that oil-driven inflation could prove sticky.
That dynamic fed worries about the Federal Reserve, which has signalled caution about cutting rates while price pressures remain a threat. A war-driven spike in energy prices is precisely the kind of supply shock that can keep inflation elevated even as growth softens, narrowing the central bank's options.
The backdrop of slowing global momentum added to the unease. The OECD recently trimmed its expectations, projecting global growth of 2.8% in 2026 and US growth of 2.0%, a picture of an economy still expanding but losing pace. Against that, the geopolitical risk emanating from the Gulf has become the market's dominant concern.
With futures pointing lower again the following morning, traders were bracing for continued volatility tied to the conflict and the path of oil. The session underscored how thoroughly the war has come to drive sentiment, overriding the technology-led optimism that had carried the market to records just days earlier.