U.S. markets face volatility as escalating Middle East tensions drive oil prices above $100 per barrel and force investors to reconsider Federal Reserve interest rate cut expectations.

Key points

• U.S. crude oil prices settled above $100 per barrel for the first time since 2022 amid ongoing conflict in the Middle East.
• The S&P 500 fell 0.39% and the Nasdaq Composite dropped 0.73%, while the Dow Jones Industrial Average saw a marginal gain of 0.11%.
• Federal Reserve Chair Jerome Powell stated that long-term inflation expectations remain stable, though markets have priced out any interest rate cuts for the remainder of the year.
• The financial sector rose 1.1% following new Department of Labor guidelines allowing alternative assets in 401(k) plans, boosting shares of Blackstone and KKR.
• Yemen's Houthi militia joined the conflict, contributing to broader market uncertainty and a 4.2% decline in the semiconductor index.

The combination of geopolitical instability and rising energy costs is creating significant uncertainty for investors regarding inflation and future monetary policy. As markets adjust to the possibility of no interest rate cuts this year, the volatility highlights the sensitivity of major indices to energy price shocks and shifting diplomatic rhetoric.