U.S. stocks closed mixed on Tuesday, with the Nasdaq Composite suffering a sharp decline while the Dow Jones Industrial Average managed a modest gain. The Dow finished 15.98 points, or 0.03%, higher at 50,801.99, while the S&P 500 fell 39.47 points, or 0.53%, to 7,366.26. The Nasdaq Composite dropped 314.38 points, or 1.21%, to 25,615.28, as a late-session selloff in technology shares erased early gains.
The divergence between the Dow and the Nasdaq highlighted a rotation out of high-flying technology stocks. Investors pulled back from crowded positions in artificial intelligence and semiconductor names, leaving other sectors relatively unscathed. The Dow's price-weighted structure meant that higher-priced components had a greater influence, helping the blue-chip index stay afloat.
Market volatility surged, with the Cboe Volatility Index, known as Wall Street's fear gauge, jumping to its highest level since April 7. The spike came after President Donald Trump stated that the U.S. must respond to Iran's downing of an American Apache helicopter near the Strait of Hormuz, dampening hopes for de-escalation in the Middle East.
"The early rally faded very quickly," said Sahak Manuelian, managing director for global equities trading at Wedbush Securities. "It was very, very short-lived." Gene Goldman, chief investment officer at Cetera, noted that there was "a lingering bit of caution" ahead of the inflation data.
The Bureau of Labor Statistics is set to release the May Consumer Price Index on Wednesday at 8:30 a.m. ET, a key data point that could influence the Federal Reserve's monetary policy path. A hotter-than-expected reading could reignite rate-hike bets and further pressure high-valuation tech stocks.
Chip and AI stocks were the main drag on the market. Micron Technology (MU) swung from an early gain of 4.2% to close down 4.3%. Marvell Technology (MRVL) slipped 4.4%, and Advanced Micro Devices (AMD) tumbled 9%. These losses weighed heavily on the Nasdaq, while the Dow's top performers included Home Depot (HD), Sherwin-Williams (SHW), and Nike (NKE). On the downside, Salesforce (CRM), Apple (AAPL), and Cisco (CSCO) lagged.
Michael O'Rourke, chief market strategist at JonesTrading, attributed the afternoon selloff to Trump's comments, saying they "created another leg down." He described the move as "more of a momentum unwind," with investors selling stocks that had rallied sharply. Oil prices provided some support, with Brent crude losing about 3%, while the 10-year Treasury yield fell to 4.53% from 4.56% on Monday.
Looking ahead, the anticipated SpaceX market debut could be a major liquidity event this week. Reuters reported that the company aims to raise $75 billion in its initial public offering at a $1.75 trillion valuation. Some strategists suggested that investors might sell semiconductor stocks to free up cash for the stock sale, adding to the pressure on tech shares.
While the Dow ended flat, downside risks remain. A hotter CPI print or escalating tensions with Iran could push rate-hike expectations higher, hit high-valuation tech names again, and widen Tuesday's narrow tech selloff into a broader market pullback. Traders head into Wednesday with less conviction in a quick AI rebound than they showed earlier in the session.
