US equity markets fell on Tuesday as investors weighed the risk of further escalation in the Iran conflict and prepared for key inflation data. The Dow Jones Industrial Average dropped 1.2% to 52,786, the technology-heavy Nasdaq Composite fell 0.3% to 26,421, and the broadly based S&P 500 lost 0.6% to 7,674. The moves reflected a mix of geopolitical risk, rate expectations and AI-related concerns in the technology sector.
Oil prices rose to within a narrow margin of $100 a barrel, their first approach to that level in weeks, on geopolitical tensions. Higher yields on US Treasury securities also made equities less attractive for some investors.
Attention turned to producer and consumer price reports due this week, which market participants view as decisive inputs for the Federal Reserve's next rate decision on Sept. 15-16. The inflation data are expected to shape expectations for the Fed's next rate decision. After a surprisingly strong August US jobs report, traders, according to the CME FedWatch tool, now see a 60% probability of a rate hike.
The technology sector was hit by concerns over the presentation of OpenAI's new model, GPT-6 Astra. The software selloff was particularly visible among software developers. Investors worried that artificial intelligence could increasingly replace services provided by specialized software firms, sending shares of Salesforce, ServiceNow and Intuit lower. The S&P software and services index fell for a second consecutive day.
Jed Ellerbroek, a portfolio manager at Argent Capital Management, said Astra renewed fears of a structural shift in the software industry and revived a familiar pattern in which semiconductor stocks and data-center investment beneficiaries outperform while software shares lag.
Intel and Qualcomm shares rose after the companies agreed with Amazon to develop customized AI chips. Apple shares declined the day before an event at which the company, under new chief John Ternus, is expected to unveil its latest smartphone.
The broader market also remained sensitive to the war involving the United States, Israel and Iran. Houthi rebels in Yemen, supported by Iran, attacked and set fire to Saudi energy facilities, pushing oil to a six-week high. Shipping through the Strait of Hormuz slowed, and Iran threatened on Monday to retaliate against any new US attacks. The developments added to concerns that the conflict could persist beyond a short-term shock.
Jeff DerGurahian, chief investor at loanDepot, said the conflict increasingly appeared less like a temporary disruption and more like a longer-term backdrop for markets.
Despite the latest losses, the S&P 500 is up about 12% in 2026 and remains only about 1% below its record high set on Aug. 13. LSEG data showed the index trading at 19 times expected earnings, down from 21 times in early June. The lower multiple reflected higher earnings expectations following a strong second-quarter reporting season.
