Dow slumps 700 points, oil jumps over 6% after Trump vows to give Iran ‘beating' following surprise attacks

• Brent crude jumped 6.4% to $89.45 per barrel and WTI crude rose 7% to $84.84 amid fears of escalating Middle East conflict and historic energy supply disruptions
• The odds of a Fed rate hike at Wednesday's meeting reached 35%, with over half of traders expecting a quarter-point increase by September due to inflation concerns
• The Strait of Hormuz, carrying 20% of global oil supplies, has been largely blockaded for months, pushing US gasoline prices above $4 per gallon

Summary

Market Impact:

U.S. stocks tumbled Wednesday morning with the Dow Jones plunging 707 points (-1.3%) by 10:10 a.m. ET, while the S&P 500 and Nasdaq fell 0.5% and 0.6%, respectively. Oil prices surged sharply—Brent crude jumped 6.4% to $89.45 per barrel and West Texas Intermediate rose 7% to $84.84.

Catalyst:

President Trump vowed to retaliate against Iran following surprise overnight missile attacks on U.S. troops in Jordan, all of which were successfully intercepted. Trump stated the U.S. would "be hitting them hard," fueling fears of prolonged Middle Eastern conflict.

Sector Impact:

Chipmakers were among the hardest hit, with AMD down 3.2%, Nvidia falling 2.1%, and Broadcom declining 0.6%, partly due to concerns about competition from Chinese technology.

Energy Supply Concerns:

The Strait of Hormuz—critical for 20% of global oil supply—has been largely blockaded for months due to the Iran conflict, contributing to the worst-ever energy supply disruption. U.S. gasoline prices have exceeded $4 per gallon. Additional "suspicious activity" was reported in the Red Sea, raising concerns about the Bab el-Mandeb Strait, which handles 7% of global oil supplies.

Federal Reserve Implications:

The turmoil preceded Fed Chairman Kevin Warsh's second meeting, with rates expected to hold at 3.5%-3.75%. However, escalating energy prices and inflation concerns have increased odds of a rate hike to 35% for Wednesday's meeting, with over half of traders anticipating a quarter-point increase by September. Warsh's hawkish stance has eliminated near-term rate cut expectations.