U.S. stocks closed firmly in the red on Tuesday, as a fresh wave of American airstrikes on Iran pushed oil prices higher, while a bond market selloff and speculation over the Federal Reserve's next move kept buyers on the sidelines. The Dow Jones Industrial Average dropped 419.01 points, or 0.79%, to settle at 52,766.87. The S&P 500 slid 54.67 points, or 0.71%, to 7,631.47, and the Nasdaq Composite fell 271.11 points, or 1.03%, to 26,099.77.

Mega-cap tech stocks were mixed, with Tesla down more than 3%, while Alphabet, Amazon, Nvidia, and Microsoft each lost over 1%. Meta gained more than 1%, and Apple climbed over 2%. Optical communications and cryptocurrency-related names were broadly lower. Circle fell more than 6%, Coinbase dropped over 6%, and Strategy retreated 6%. Lumentum sank over 5%, and AAOI declined nearly 4%.

The pharmaceutical sector led gains, with Moderna surging nearly 10%, Novartis rising over 6%, and Novavax gaining 8%. U.S. Central Command said American forces were striking Islamic Revolutionary Guard Corps targets inside Iran, fueling the jump in crude. West Texas Intermediate crude rose 5.2% to settle at $90.22 per barrel, while Brent futures advanced 4.6% to close at $94.65 per barrel. Oil had already risen earlier in the week after military operations between the U.S. and Iran resumed on Monday, when a tanker transiting the Strait of Hormuz was struck by three unidentified projectiles.

Adding to the pressure, President Donald Trump warned in a Fox News interview on Monday that Washington would respond forcefully to recent Iranian attacks on American military bases in the Middle East, saying, "We will hit them very hard." Global bond yields continued to climb on Tuesday. The 10-year U.S. Treasury yield rose to levels not seen since January 2025. Japan's 10-year yield reached its highest point since August 1996, while Germany's benchmark yield hit highs not observed since 2011. The persistent rise in global yields stems from trader concerns that sustained high oil prices could stoke inflation and influence the Fed's rate trajectory.

The Fed is scheduled to meet in two weeks, and September has historically been a weak month for equities. "The stock market is going to have a hard time digesting the large and volatile moves in the bond market," said Ross Mayfield, investment strategist at Baird. "I think that's going to be with us for the short term and the longer term." Despite inflation worries, Mayfield noted that economic data has not yet shifted enough to justify a rate hike this month. According to the CME FedWatch tool, federal funds futures are now pricing in a 68% probability that the central bank raises rates at its next meeting. "I know the market is now expecting a hike, or at least thinks one is more likely than holding steady. I still think they'll hold in September, but there's a decent chance of at least one hike before year-end," he said, while cautioning that "a lot can change" before the meeting, especially with the August nonfarm payrolls report due on Friday.