Wall St Falls Sharply as Mideast War Fuels Inflation Fear

Wall Street ended sharply lower Friday, with losses in heavyweights Nvidia and Microsoft, as the U.S.-Israeli war against Iran entered its fourth week, deepening worries about inflation and the potential for higher interest rates.

The conflict in the Middle East showed no signs of easing. The U.S. military was deploying a large amphibious assault ship with thousands of additional Marines and sailors to the Middle East, while Iran's new supreme leader hailed Iran's "unity" and "resistance."

"The market is finally settling into the idea that this may go on longer than initially expected, and I think that's why markets are selling off. This conflict may go on not for just a few weeks, but maybe beyond several months," said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma.

Wall Street's most valuable companies declined, with Nvidia , Alphabet, Tesla, Meta Platforms and Microsoft all losing ground. U.S. Treasuries fell for a third session, in step with a broader selloff in UK and European government bonds, as the Middle East conflict kept oil prices elevated and reinforced inflation worries.

U.S. rate futures show the Fed is more likely to raise interest rates than cut them by the end of 2026, according to CME's FedWatch tool.

"We just have a classic environment that is pushing rates up and it's driven by higher inflation expectations, which relate back to the oil price. And the fact that we're heading into the fourth week of the war suggests that that stress is not going away anytime soon," said Padhraic Garvey, head of global rates and debt strategy at ING in New York.

According to preliminary data, the S&P 500 lost 99.01 points, or 1.49%, to end at 6,508.32 points, while the Nasdaq Composite lost 436.98 points, or 1.98%, to 21,653.71. The Dow Jones Industrial Average fell 422.32 points, or 0.92%, to 45,599.11.

Friday marks the once-in-a-quarter simultaneous expiry of derivatives contracts tied to stocks, index options and futures, also known as "triple witching," which can boost trading volume and aggravate volatility.

All three main indexes were heading for their fourth straight week of losses and were below their 200-day moving averages, underscoring the recent deterioration of sentiment on Wall Street.

Super Micro Computer tumbled after three people associated with the artificial intelligence server maker were charged with smuggling at least $2.5 billion of AI technology to China. Rival Dell advanced.