U.S. Stocks Slide After Fed Pause, Escalation in Iran War -- Update

By Rob Curran

U.S. stocks fell sharply after the Federal Reserve held rates steady, while investors worried that rate hikes were coming later this year as the war in Iran escalated.

The Fed left interest rates in a range between 3.5% and 3.75%, but there were three dissenting votes from officials calling for a hike. Stocks initially bounced and the U.S. dollar weakened after the decision because of speculation that the central bank could raise rates in July. In the press conference following the statement, Fed Chairman Kevin Warsh emphasized his board's commitment to bringing inflation back to the 2% target.

The Dow Jones Industrial Average dropped 1153.18 points, or 2.19%, to 51594.14, the biggest drop for the blue-chip gauge since April 2025. The broad S&P 500 lost 112.63 points, or 1.52%, to 7316.15. The tech-heavy Nasdaq Composite fell 433.97 points, or 1.74%, to 24442.94 , and is now down by almost 10% from its June closing record, on the cusp of correction territory

"Under Chair Powell, the Fed really, really missed the boat on inflation and waited far too long and was heavily criticized for it," said Oliver Pursche, senior vice president at financial advisory firm Wealthspire. "I don't think Kevin Warsh wants that to be part of his legacy and certainly doesn't want that to be an early fumble."

Oil prices rose sharply after Iran fired missiles at U.S. forces in Jordan. Crude oil for September delivery gained $5.20, or 6.6% to $84.46 a barrel in New York.

"The Fed's...hope and expectation is that the inflation associated with high energy prices and high oil prices will be transitory and that a resolution to the war is going to come reasonably quickly," said Pursche, of Wealthspire.

The Treasury market's response to the Fed's pause was mixed.

The yield on the policy-sensitive two-year Treasury declined 0.040 percentage point to 4.235%. The yield on the 10-Treasury year note rose 0.017 percentage point to 4.621%. The yield on the 30 Year bond rose 0.046 percentage point to 5.142%. Rising long-term Treasury yields are likely to pass through to the mortgage market. Fears of the implications for house sales weighed on homebuilder stocks.

The U.S. dollar slid in the wake of the Fed's decision, reflecting relief that the central bank did not raise rates.

Gold futures fell $1.60, or 0.04% to $4034.70 a troy ounce during the regular session, ahead of the Fed's statement. Gold prices, which often respond to moves in interest rates and the U.S. dollar, rose in late trading.

The average price of gasoline in the U.S. Wednesday was $4.09 a gallon, according to motoring group AAA. That's well off the highs of the year but still testing the limits of consumer comfort, based on sentiment surveys from the University of Michigan and others in recent years.

A flight from chip stocks continued. The KOSPI Composite index fell by almost 6% overnight and is now down by about 38% from its June 22 high. South Korean memory-chip maker SK Hynix tumbled as dramatic quarterly operating profit growth still lagged stratospheric investor expectations.

In the U.S., the PHLX "SOX" Semiconductor Sector Index fell 5.3%. It was the 13th time since June 1 the index rose or fell by more than 5%, making it one of the most volatile periods for chip stocks since the bursting of the dot-com bubble in 2000.

Shares of VF Corp. fell 17% as weakness in sales of the clothing maker's Van's skatewear brand offset strength in other brands such as North Face.

Procter & Gamble shares fell 1.9% after the maker of Tide laundry detergent and other household staples logged a decline in second-quarter profit.

The healthcare device sub sector was a bright spot. GE HealthCare, one of the world's largest producers of magnetic resonance imaging machines, posted an increase in quarterly orders. Shares rose 12% to $71.90.

Hims & Hers slid 15% to $25 after the Federal Trade Commission filed a lawsuit against the telehealth provider, accusing it of sharing customers' medical information with third-party advertisers.

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July 29, 2026 16:44 ET (20:44 GMT)