US stock market today: Dow, S&P 500, Nasdaq drop as weak US spending data and Iran-Israel fears send oil soaring — is a Fed rate cut coming next?

US stock market today: On Tuesday, the S&P 500 dropped 0.3%, trimming its gains for June. The Dow Jones Industrial Average slipped 0.2%, and the Nasdaq 100 fell by 0.4%. This sell-off came as a mix of economic and geopolitical worries sparked risk-off behavior among investors.

A string of weak data points from the U.S. economy drove uncertainty. Retail sales fell for the second month in a row, showing that American consumers—who drive over two-thirds of the economy—are becoming cautious. Meanwhile, industrial production also declined, hurt by a slowdown in utilities and manufacturing. In the housing market, builder confidence dropped to its lowest since December 2022, reflecting slowing demand.

According to Bret Kenwell from eToro, “The economy and the consumer are holding up for now, but there are signs of vulnerability. That could present risks in the second half of the year—especially if we see a further slowdown in jobs or spending.”

How did the stock market perform today?

By midday, all three major indexes were in the red:

• S&P 500 dipped 0.3%
• Dow Jones eased 0.2%
• Nasdaq fell around 0.4%, pressured by weakness in tech and consumer discretionary sectors

The selling came as traders digested downbeat macro data and kept a wary eye on geopolitical headlines.

Is the Federal Reserve preparing to cut interest rates soon?

With weak economic indicators piling up, market participants are ramping up bets on Federal Reserve rate cuts. The Fed begins its two-day policy meeting in Washington today, and while no changes are expected in June or July, futures markets are now pricing in nearly two quarter-point cuts before the end of the year, with the first one fully expected in October. Seema Shah of Principal Asset Management noted, “The Federal Reserve is navigating a narrow path. We expect the Fed to wait until the fourth quarter before it reduces policy rates.” Even so, the Fed may use Wednesday’s meeting to update its economic and interest rate forecasts, which could signal more clearly what’s ahead. President Donald Trump—who has criticized the Fed in the past—could react strongly if policymakers delay cuts, especially as political pressure mounts in an election year.

With economic data weakening and inflation showing signs of moderation, traders are increasingly betting the Fed could begin easing:

• The 10-year Treasury yield slipped to around 4.43%, signaling growing demand for safer assets.
• Futures markets now price in about 46 basis points of rate cuts by December — suggesting 1 to 2 cuts could be on the table.

That said, the Fed is expected to hold rates steady at this week’s meeting, but its tone and economic projections will be closely watched.

What economic data triggered the sell-off?

Investors were hit with disappointing numbers on multiple fronts:

• May retail sales declined by 0.9%, worse than forecasts for a 0.6% drop — marking the second straight monthly contraction.
• Factory output showed signs of stagnation, with minimal growth across the manufacturing sector.

The data painted a picture of a slowing economy, adding to concerns that the consumer-driven post-pandemic recovery is losing steam.

How are Middle East tensions adding to global market anxiety?

Beyond the economic slowdown, geopolitical tensions are making investors nervous. Israel and the United States are increasing pressure on Iran, stoking fears of more direct military involvement. Reports suggest that recent Israeli attacks on Iranian nuclear sites may trigger retaliation.

President Trump, after cutting short his visit to the G7 summit in Canada, stated that he wants to put a permanent end to Iran’s nuclear ambitions, heightening concerns of further conflict.

According to Kenny Polcari at SlateStone Wealth, “Markets will remain mostly on edge until they lower the temperature in the region.” The rising cost of oil due to Middle East risks could also complicate the Fed’s fight against inflation, particularly if crude oil prices stay elevated for long.

Tensions between Israel and Iran continued to escalate, now entering their fifth day. U.S. crude oil surged by over 2.6%, and Brent crude was up nearly 2.8%, adding to last week’s already steep gains of up to 11%.

President Donald Trump issued a sharp warning urging Americans to evacuate Tehran, signaling rising risks of direct U.S. involvement in the conflict. That spooked markets further and pushed energy prices higher.

What are investors betting on for long-term returns?

While US stocks have dominated global markets for years, that may be changing. According to Bank of America’s latest fund manager survey, only 23% of respondents expect US equities to be the best-performing asset class over the next five years. In contrast, 54% see international stocks taking the lead.

Just 13% are backing gold, and a mere 5% believe bonds will offer the best returns. This is the first time Bank of America asked investors to predict the top-performing asset class over a five-year period.

Which sectors are moving the most?

• Energy stocks were among the few bright spots: Chevron and ExxonMobil edged higher alongside oil prices.
• Solar and renewable energy names were hammered:
  • Enphase down 23%
  • First Solar dropped 18%
  • Sunrun plummeted 39%, amid growing fears of subsidy cuts under Trump’s energy policy shifts.

Meanwhile, consumer and tech sectors dragged on the broader indexes, reflecting growing caution over spending and demand.

Which corporate headlines are moving markets this week?

Several major companies made headlines on Tuesday:

• Solar energy stocks dropped after Senate Republicans proposed ending clean energy tax credits earlier than expected.
• xAI, Elon Musk’s AI startup, is reportedly raising $4.3 billion in equity after already seeking $5 billion in debt funding.
• Eli Lilly & Co. agreed to buy Verve Therapeutics for $1.3 billion, strengthening its gene-editing portfolio.
• Salesforce Inc. announced price increases on multiple software products amid growing AI integration.
• UnitedHealth Group issued a multi-part bond deal, tapping the US investment-grade bond market.
• JetBlue plans to cut costs by pausing retrofits and canceling some routes due to soft travel demand.
• Adobe Inc. launched a Firefly AI mobile app for both Android and iOS, expanding its reach in creative AI tools.
• Kraft Heinz will remove synthetic dyes like Red 40 and Yellow 5 from all US products by 2027.
• SoftBank raised $4.8 billion by selling T-Mobile US shares, funding its AI ambitions.
• Airbus SE secured a 100-jet deal with Vietjet at the Paris Air Show, boosting its aircraft order book.

How are global financial markets reacting to all this?

Here’s a snapshot of Tuesday’s major market moves:

Stocks:

• S&P 500: -0.3%
• Nasdaq 100: -0.4%
• Dow Jones: -0.2%
• Stoxx Europe 600: -0.9%
• MSCI World Index: -0.5%
• Bloomberg Magnificent 7 Index: -0.6%
• Russell 2000: -0.3%

Currencies:

• Dollar Index: Little changed
• Euro: $1.1557 (flat)
• British Pound: Down 0.3% to $1.3541
• Japanese Yen: Down 0.1% to 144.95 per dollar

Cryptocurrencies:

• Bitcoin: Down 3.4% to $105,091.62
• Ethereum: Down 4.5% to $2,550.23

Bonds:

• US 10-year yield: Down 1 basis point to 4.44%
• Germany’s 10-year yield: Flat at 2.53%
• UK 10-year yield: Up 1 basis point to 4.54%

Commodities:

• West Texas Intermediate crude: Up 2.1% to $73.25 per barrel
• Spot gold: Little changed

What’s the outlook moving forward?

Market volatility is creeping back in, with the VIX (volatility index) rising over 4% today. Analysts warn that prolonged conflict in the Middle East, coupled with shaky consumer demand, could drive more downside risk.

RBC Capital noted the S&P 500 could retreat to the 4,800–5,200 range if inflation re-accelerates and the Fed stays hawkish in response to higher oil prices.

Key things to watch this week:

• Federal Reserve policy decision (announcement and press conference on Wednesday)
• More May economic data: industrial production, housing starts, and import/export prices
• Ongoing developments in the Israel-Iran conflict and any U.S. military or diplomatic responses

FAQs:

Q1. Why did US stocks fall today despite earlier gains?
Stocks dropped due to weak US economic data and growing tensions in the Middle East.

Q2. Will the Federal Reserve cut interest rates this year?
Traders expect rate cuts later in the year, possibly starting by October.