Wall Street falls amid Middle East tensions and rising interest rates

March 24 (Reuters) – Wall Street indexes fell in Tuesday’s volatile session as investors swayed between fears of rising oil prices and hopes for a resolution to the U.S.-Israeli war on Iran as U.S. President Trump claimed there were talks even as reports suggested that more American troops were headed to the Middle East.

U.S. Treasury yields extended gains after a weak auction of 2-year Treasury notes, also adding pressure to equity markets.

Indexes regained some ground after Trump told reporters that the United States was talking to “the right people” in Iran in order to reach an agreement to end hostilities and that Iran has agreed they will never have nuclear weapons. But reports the Pentagon would send thousands of more troops from the elite 82nd Airborne Division to the Middle East caused some concerns.

Wall Street indexes on Monday had marked their biggest one-day gain since February 6 ]as oil prices fell after Trump had postponed strikes against Iranian power plants and announced talks with Iran even as Tehran denied negotiations with the U.S. But energy prices rose on Tuesday with crude oil futures settling up more than 4%.

“Stocks are trying to find their footing as investors are keeping one eye on social media and the other eye on every headline. We’re very short-term oriented,” said Carol Schleif, chief market strategist, BMO Private Wealth.

“Markets are trying to hold onto the optimism they had yesterday. They’re so ready to move beyond war talk even if it’s not 100% settled,” said Schleif but she added, “There’s a lot of nervousness. People are watching oil and watching interest rates and worrying do we go higher for longer on both energy and interest rates because that could start negatively impacting growth.”

Kevin Gordon, head of macro research & strategy at the Schwab Center for Financial Research in New York also pointed to a “double whammy” higher oil prices and higher rates as a “stagflationary backdrop, which, needless to say, is not a positive backdrop for the stock market.”

According to preliminary data, the S&P 500 lost 24.62 points, or 0.36%, to end at 6,557.19 points, while the Nasdaq Composite lost 184.86 points, or 0.84%, to 21,762.77. The Dow Jones Industrial Average fell 87.24 points, or 0.19%, to 46,121.23.

Among the 11 S&P 500 major industry sectors, energy led gains during the session while communication services and technology were leading losses.

Meanwhile, private credit concerns resurfaced after a report that Ares Management limited redemptions at 5% at its private credit fund, along with Apollo Global Management, as withdrawal requests surged.

Earlier a survey showed U.S. business activity slowed to an 11-month low in March as the Middle East war raised prices for energy products and other inputs.

Higher oil prices have revived inflation jitters and complicated the interest rate outlook for central banks. The U.S. Federal Reserve struck a hawkish tone last week, projecting only one reduction in 2026.

Traders are no longer pricing in any rate cuts this year, compared with two reductions expected before the Middle East conflict erupted. Expectations for hikes nudged higher amid escalating tensions last week, but were quickly unwound after Trump’s comments on Monday, according to CME’s FedWatch Tool.

Among individual movers, shares of Jefferies rose after the Financial Times reported that Japan’s Sumitomo Mitsui Financial Group is working on plans for a possible takeover of the investment bank.

Shares in cosmetics maker Estee Lauder tumbled after it said it was in talks for a potential merger with Spanish beauty group Puig Brands.

Barclays lifted its 2026 year-end target for the S&P 500 index to 7,650 from 7,400, citing stronger earnings expectations that outweigh macro risks like Middle East tensions, AI-driven disruption and stress in private credit.

(Reporting by Sinéad Carew in New York, Purvi Agarwal and Twesha Dikshit in Bengaluru; Editing by Sherry Jacob-Phillips, Maju Samuel and Aurora Ellis)