U.S. stock indexes drifted lower on Tuesday as rising oil prices and weakening consumer spending raised investor concerns. At midday, the S&P 500 dropped 0.3%, the Nasdaq Composite fell 0.3%, and the Dow Jones Industrial Average edged down 39 points, or 0.1%. Volatility across markets reflected investor unease over both economic indicators and escalating geopolitical risks.
Consumer Spending Pullback Raises Red Flags
Retail sales data released Tuesday signaled a softening in one of the U.S. economy’s strongest pillars: consumer spending. Shoppers spent less in May than in April and fell short of economists’ expectations. While some of April’s activity was influenced by Americans rushing to make large purchases—like automobiles—before expected tariffs, May’s numbers likely reflect a normalization rather than a full slowdown.
“Today’s data suggests consumers are downshifting, but they haven’t yet slammed the brakes,” said Ellen Zentner, chief economist at Morgan Stanley Wealth Management. This moderation, however, could influence the Federal Reserve’s outlook on future interest rate decisions.
Rising Oil Prices Return as Middle East Tensions Flare
A major concern weighing on markets is the resurgence in rising oil prices, driven by fresh conflict in the Middle East. President Donald Trump issued a stark warning, urging residents in Tehran to evacuate just hours after suggesting a nuclear deal with Iran was still on the table. Simultaneously, Israel’s ongoing military engagement with Iran has reignited fears over disruptions in global oil supply.
Iran, a major oil producer, controls the Strait of Hormuz—a critical chokepoint through which a large share of the world’s crude oil passes. A worsening of the conflict could constrict global supply and drive prices higher.
On Tuesday, U.S. benchmark crude oil rose 2.8% to $72.19 a barrel, while Brent crude, the global standard, climbed 3% to $75.40 per barrel. These gains follow a 7% surge on Friday, indicating a possible trend of sustained rising oil prices if geopolitical tensions intensify.
Energy and Solar Stocks React Differently
Traditionally, higher oil prices can benefit clean energy companies as they improve the relative cost advantage of renewables. However, solar stocks tumbled sharply due to a separate threat: proposed rollbacks on federal tax credits for green energy.
Shares of Enphase Energy (NASDAQ:ENPH) plunged 25%, while First Solar (NASDAQ:FSLR) dropped 18.1%. Investors fear that without these incentives, demand for solar installations could decline despite rising oil prices.
Winners: AI Demand and Biotech Deals
Not all sectors suffered on Tuesday. Electronics manufacturer Jabil (NYSE:JBL) gained 11.9% after beating quarterly earnings expectations. CEO Mike Dastoor pointed to strong demand driven by artificial intelligence applications as a key growth driver.
Another standout was Verve Therapeutics (NASDAQ:VERV), which soared 76.4% after pharmaceutical giant Eli Lilly (NYSE:LLY) announced a $1 billion acquisition deal. Verve, which focuses on gene editing for cardiovascular conditions, could receive up to $1.3 billion if milestones are met. In contrast, Eli Lilly shares fell 1.2% on the news.
Fed Holds Steady, Eyes Inflation and Tariffs
Investors are also closely watching the Federal Reserve’s two-day meeting, which began Tuesday. The Fed is widely expected to hold interest rates steady amid uncertainty over Trump’s tariff strategy and its potential economic impact.
While inflation remains close to the Fed’s 2% target, markets are looking ahead to Wednesday’s updated economic projections for insight into rate policy for the rest of the year.
In bond markets, the 10-year Treasury yield slipped to 4.42% from 4.46%, and the two-year yield fell to 3.95% from 3.97%, indicating lower rate expectations.
Global Markets Show Mixed Reactions
Overseas, European stock indexes fell broadly, while Asian markets were mixed. Japan’s Nikkei 225 gained 0.6% after the Bank of Japan left its interest rate unchanged, signaling a cautious approach to tightening as inflation moderates.
As investors weigh weaker U.S. retail data, rising oil prices, and international turmoil, markets remain on edge. How long this instability will last depends largely on geopolitical developments and the Fed’s response to economic shifts in the months ahead.
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