Stocks and sectors that led gains in recent days logged the steepest declines. Software stocks shed 3.1% following a sharp rebound, while Datadog, Palo Alto and IBM fell between 6.7% and 7.7%.
Four of the 11 S&P 500 sectors were in the red, with the tech index leading the declines.
Brent crude futures rose over 2% after an Iranian missile attack damaged Kuwait’s airport and the US military carried out strikes near the Strait of Hormuz, raising the risk of further supply disruption that could stoke broader inflation.
“We won’t have any drawdown (in US stocks) without some solid evidence of the Middle East situation’s influence on unusually high inflation prints… prints with high positive surprise as we did in 2022,” said Alexander Lis, chief investment officer at Social Discovery Ventures.
Latest data showed that the US services sector activity picked up in May as businesses preemptively placed orders and rebuilt inventories in anticipation of shortages and higher prices because of the war with Iran.
It came ahead of Friday’s closely watched labour market report, which could shape expectations for monetary policy.
Money markets expect the Federal Reserve to keep interest rates on hold for the remainder of the year, with growing odds of a 25 bps rate hike.
At 10.03 am ET, the Dow Jones Industrial Average fell 278.51 points, or 0.54%, to 51,029.28, the S&P 500 lost 27.18 points, or 0.36%, to 7,582.48 and the Nasdaq Composite lost 134.41 points, or 0.50%, to 26,959.49.
The small cap Russell 2000 dropped 1.3%.
The S&P 500 closed above 7,600 for the first time on Tuesday, as all three major indexes ended at records, driven by a run of corporate updates reinforcing expectations of sustained AI spending.
The Philadelphia chip index .SOX slid 0.7%. Broadcom shares dipped 1.2% ahead of the company’s quarterly report due after market close. The results would be the next key test of AI-driven momentum. The stock has already risen 14% in the past four sessions.
Marvell Technology bucked the trend and extended gains with a 2% rise, hitting US$250 billion in market value, a day after Nvidia CEO Jensen Huang called the chipmaker the next “trillion-dollar company”.
Fed Chair Kevin Warsh pledged to follow “the best of the Fed’s traditions” in a note to staff at the start of his four-year term.
In other corporate news, asset managers dropped after Switzerland’s Partners Group capped withdrawals from an US$8.6 billion private equity fund. KKR, Blackstone, Blue Owl and Ares Management fell between 5.3% and 6.3%.
GameStop advanced 8.5% after posting a rise in quarterly revenue and unveiling a US$2 billion share buyback program.
Meanwhile, Elon Musk’s SpaceX plans to price its IPO at US$135 a share, ahead of a roadshow, to raise a record US$75 billion, a source familiar with the matter told Reuters on Tuesday.
Declining issues outnumbered advancers by a 2.61-to-1 ratio on the NYSE and by a 2.78-to-1 ratio on the Nasdaq.
The S&P 500 posted 19 new 52-week highs and 10 new lows, while the Nasdaq Composite recorded 48 new highs and 74 new lows.