Stocks Slip as Oil Rebounds and Iran War Keeps Markets on Edge

CNBC, AP, the Wall Street Journal, Bloomberg, and Market Watch contributed to this report.

Wall Street couldn’t hold onto Monday’s optimism.

The S&P 500 slid early Tuesday, at one point dropping 0.8% and giving back much of the previous day’s rally. Losses eased as the session wore on, but the index was still down about 0.2% by mid-afternoon. The Dow Jones Industrial Average barely budged, while the Nasdaq Composite took a heavier hit, falling around 0.7%.

The mood? Unsteady. Markets are still trying to figure out how long the war with Iran might drag on – and what that means for everything from oil to inflation.

Monday’s surge had been driven by comments from Donald Trump, who said the US and Iran held “productive” talks about ending hostilities. Investors jumped on that hint of a possible off-ramp. Stocks rallied. Oil dropped sharply.

That optimism didn’t last long.

By Tuesday, mixed signals were coming in. Fighting in the region continued, and Tehran pushed back on Trump’s claim that talks had taken place. At the same time, Pakistan’s Prime Minister Shehbaz Sharif said his country was willing to help broker negotiations.

Markets reacted accordingly – by bouncing around.

Oil prices reversed hard. Brent crude jumped nearly 5% to above $104 a barrel, clawing back a chunk of Monday’s steep 10% drop. US crude followed the same path, rising close to 5%.

That rebound put fresh pressure on stocks.

Higher oil feeds straight into inflation worries, and that’s already showing up in the bond market. Treasury yields moved higher again, tightening financial conditions. The 10-year yield climbed to around 4.40%, up from below 4% before the conflict escalated. The 2-year yield also ticked up, reflecting shifting expectations around interest rates.

At the start of the year, traders were betting the Federal Reserve would cut rates. Now those bets are fading fast. Some are even bracing for a potential hike by the end of 2026 if inflation stays sticky.

Higher rates ripple through everything – mortgages, corporate borrowing, stock valuations. None of it helps sentiment.

There were some notable stock moves beneath the surface. Estée Lauder tumbled more than 10% after confirming it’s in merger talks with Spain’s Puig. On the flip side, Smithfield Foods rose after posting stronger-than-expected results.

Energy stocks caught a lift from oil’s rebound. ExxonMobil gained nearly 3%, while ConocoPhillips also moved higher.

Outside the US, markets painted a mixed picture. European indexes wavered. In Asia, stocks rallied in their first chance to react to Monday’s headlines, with Hong Kong and South Korea posting solid gains.

For now, the bigger driver isn’t earnings or economic data. It’s geopolitics.

And until there’s clarity on how – or if – the Iran conflict winds down, markets are likely to keep swinging.