Dow drops 700 points as Trump ends Iran peace pause

The Dow Jones Industrial Average fell 700 points at midday Tuesday after President Trump ended the Iran peace pause, reigniting geopolitical risk and triggering a broad selloff across U.S. equities.

"The market is pricing in a return to maximum uncertainty in the Strait of Hormuz," said Sarah Lin, equity strategist at Edgen. "The peace pause had allowed oil prices to stabilize and equity volatility to compress. That cushion is gone."

The selloff erased the Dow's gains from earlier in the session, when the blue-chip index had traded near the 53,000 level. The S&P 500 and Nasdaq Composite also turned sharply lower, with the S&P 500 falling more than 2% and the tech-heavy Nasdaq dropping over 3% as semiconductor and AI-related stocks extended their recent declines.

Energy stocks initially rallied on the news, with the S&P 500 Energy Sector gaining more than 4% in morning trading as crude oil prices spiked. West Texas Intermediate futures jumped above $75 per barrel, while Brent crude topped $79, as traders priced in the risk of supply disruptions through the Strait of Hormuz. The Islamic Revolutionary Guard Corps had fired upon vessels near the strait in recent days, and the revocation of Iran's oil-sales waiver removed the last diplomatic buffer.

The selloff was broad-based. The Cboe Volatility Index, or VIX, surged above 30, its highest level since the initial Iran conflict escalation earlier this year. Trading volume across U.S. exchanges ran more than 40% above the 20-day average as institutional investors rushed to hedge portfolios.

The 10-year Treasury yield fell 12 basis points to 4.42% as investors sought safe-haven assets, while gold futures climbed 2% to above $4,200 an ounce. The U.S. dollar index rose 0.6% to 101.68, reflecting a flight to dollar liquidity. Bitcoin slipped below $62,000 as risk assets sold off across the board.

The move marks a sharp reversal from the prior session, when the Dow had set a new intraday record above 53,000 before closing 0.3% lower at 52,845. Monday's decline had been driven by a selloff in chip stocks after Samsung shares fell 7% in Seoul trading, with Intel, Advanced Micro Devices, and Marvell Technology each dropping between 6.5% and 10%.

Tuesday's catalyst carries broader implications. The end of the Iran peace pause reintroduces a geopolitical risk premium that had been compressing since the ceasefire was announced. Oil prices had fallen back toward pre-war levels in recent weeks, with WTI dipping below $67 a barrel last week after Qatar reported progress on shipping through the Strait of Hormuz. That progress now appears in doubt.

For equity investors, the question is whether this is a temporary shock or the start of a sustained risk-off rotation. The S&P 500 had been riding a wave of strong earnings expectations, with analysts projecting 23% earnings growth for the second quarter — the second consecutive quarter of growth above 20%. But those estimates were built on assumptions of stable energy costs and easing supply-chain pressure, both of which are now under threat.

The next catalyst comes Thursday, when PepsiCo reports quarterly earnings before the bell, followed by the start of bank earnings season next week. JPMorgan Chase, Bank of America, and Wells Fargo are among the large lenders set to report, and their commentary on the economic outlook will be closely watched for signs that geopolitical uncertainty is weighing on corporate confidence.

This article is for informational purposes only and does not constitute investment advice.