Wall Street stocks pulled back from record highs as flaring tensions in the Middle East and rising crude prices stoked inflation jitters and convinced investors to take some profits.
All three major US stock indexes closed in negative territory on Wednesday, dragged lower by financials and tech , with the small-cap Russell 2000 underperforming its larger-cap counterparts.
Chips gained 1.4 per cent, indicating the artificial intelligence fervor is alive and well. Even so, six of the Magnificent Seven group of AI-related megacaps ended lower. Meta Platforms was the sole gainer, rising 4.2 per cent.
"The AI names are trading on their own completely separate world, largely oblivious to macro and geopolitical risk, at least within reason," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky.
"And so there's going to be a bid for those names, especially on days where everything else looks a little bit less attractive."
The S&P Software & Services index, battered in recent months by fears of AI disruption, slid four per cent.
Middle East hostilities intensified as the US and Iran traded a new round of air strikes, the latest test of a shaky ceasefire.
Oil prices rose, adding to worries that upward pressure on energy prices could metastasise into broader, systemic inflation.
"This market continues to demonstrate a tug of war between fundamentals in the US economy, which are incredibly positive, and concerns that the duration of the conflict in the Middle East will lead to downside risks," said Bill Northey, senior investment director at US Bank Wealth Management, Billings, Montana.
"Our framework is centred around the duration of the closure of the Strait of Hormuz as the primary input to inflation expectations."
"The longer the duration of that closure, the less likely the Federal Reserve will be able to ease in 2026," Northey added.
In fact, financial markets are pricing in a 41.1 per cent likelihood of a rate hike at the conclusion of the US Federal Reserve's December meeting, up from 9.1 per cent one month ago, according to CME's FedWatch tool.
New York Fed President John Williams reiterated his position that the central bank does not need to change interest rates despite upside inflation risks, stating monetary policy is "in the right place."
Economic data suggested the labour market was stable, and the services sector continued to expand, but input prices remained elevated and corporate spending plans appeared soft amid rising energy costs and geopolitical uncertainties.
The Beige Book, the Fed's regional economic survey, showed economic activity gathered steam in recent weeks, employment was little changed, but the fallout from higher energy prices due to the war was pervasive.
The Dow Jones Industrial Average fell 620.72 points, or 1.21 per cent, to 50,687.07, the S&P 500 lost 56.06 points, or 0.74 per cent, to 7,553.72 and the Nasdaq Composite lost 239.92 points, or 0.89 per cent, to 26,853.98.
Of the 11 major sectors of the S&P 500, tech and financials fell the most. Energy stocks, buoyed by oil prices, enjoyed the largest percentage gains.
Among chipmakers, Marvell, Intel, Qualcomm , and Sandisk advanced between 3.7 per cent and 6.7 per cent.
Broadcom fell 4.5 per cent in extended trading after reporting results.
Asset managers dropped after Switzerland's Partners Group capped withdrawals from an $US8.6 billion ($A12 billion) private equity fund. KKR, Blackstone, Blue Owl and Ares Management dropped between 3.9 per cent and 4.2 per cent.
GameStop jumped six per cent after the original meme stock posted a rise in quarterly revenue and unveiled a $US2 billion ($A2.8 billion) share buyback program.
Elon Musk's SpaceX plans to price its IPO at $US135 ($A189) a share to raise a record $US75 billion ($A105 billion), a source familiar with the matter told Reuters on Tuesday.
Declining issues outnumbered advancers by a 3.04-to-1 ratio on the NYSE. There were 291 new highs and 187 new lows on the NYSE.
On the Nasdaq, 1,351 stocks rose and 3,498 fell as declining issues outnumbered advancers by a 2.59-to-1 ratio.
The S&P 500 posted 33 new 52-week highs and 19 new lows while the Nasdaq Composite recorded 90 new highs and 137 new lows.
Volume on US exchanges was 19.81 billion shares, compared with the 20.12 billion average for the full session over the last 20 trading days.
