Donald Trump declared his ceasefire with Iran finished on Wednesday and threatened additional military strikes, sending oil prices surging and stocks tumbling.
Speaking at the NATO summit in Ankara, Turkey, Trump said the ceasefire is "over" and that the U.S. would "hit them hard tonight," referring to Iran. "I don't want to deal with them anymore. They're scum," he said.
Major indexes sold off sharply, with the Dow Jones Industrial Average shedding around 824 points, equivalent to a 1.5% decline. Losses of approximately 1% were recorded by both the S&P 500 and the Nasdaq $NDAQ Composite.
By midday, Brent crude futures had jumped to $80.07 a barrel, an 8% gain. West Texas Intermediate was not far behind, advancing 7.6% to reach $75.77 a barrel.
The comments from Trump followed U.S. military action on Tuesday in which more than 80 Iranian targets were hit — action the administration characterized as a "series of powerful strikes" — after Iran attacked three commercial ships near the Strait of Hormuz.
NATO Secretary General Mark Rutte, also speaking in Ankara, called the U.S. strikes "absolutely necessary." "When you have a ceasefire and Iran is basically violating the ceasefire — we see what happened yesterday with ships being attacked — I think it is totally crucial that the U.S. forcefully reacts," he said, according to CNBC.
Among individual movers, oil-linked names outperformed: ConocoPhillips $COP and Chevron $CVX each added 2%, and Marathon $MPC Petroleum surged 5%. Retailers and travel companies bore the brunt of the selloff — Home Depot $HD gave back 3%, McDonald's $MCD was off more than 1%, and Booking Holdings $BKNG declined 4%.
According to the Wall Street Journal, bond markets also felt the impact, with Treasury yields climbing as traders worried that a spike in energy costs could reignite inflation.
Daniela Hathorn, a senior market analyst at Capital.com, wrote in a Wednesday note that investors had been caught flat-footed by the flare-up. "Renewed tensions in the Middle East have interrupted what had become an increasingly complacent market narrative, prompting investors to reassess geopolitical risks after several weeks of pricing in a smooth path toward de-escalation," she said. In a follow-up remark, Hathorn cautioned that a durable resolution between Washington and Tehran remained far from certain, and that the belief the conflict would quietly recede had proven wishful thinking.
Rounding out a busy day for markets, the Federal Open Market Committee is scheduled to release minutes from its June gathering at 2 p.m. ET. Analysts expecte the readout to shed light on the deliberations at Kevin Warsh's inaugural meeting as Fed chairman, during which policymakers held rates steady but left the door open to further increases should inflation prove stubborn.