Dow closes nearly 300 points lower Tuesday as Israel-Iran conflict intensifies

Stocks were lower on Tuesday as investors pored through the latest developments in the Middle East, with the Israel-Iran conflict raging on for a fifth day.

The Dow Jones Industrial Average lost 299.29 points, or 0.70%. The S&P 500 shed 0.84%, while the Nasdaq Composite traded down 0.91%.

President Donald Trump threatened Iran’s leader in a series of Truth Social posts Tuesday and demanded “UNCONDITIONAL SURRENDER!”

“We know exactly where the so-called ‘Supreme Leader’ is hiding,” he wrote in one of the posts. “He is an easy target, but is safe there - We are not going to take him out (kill!), at least not for now. But we don’t want missiles shot at civilians, or American soldiers. Our patience is wearing thin.”

Trump met with his national security team in the White House Situation Room Tuesday afternoon. Meanwhile, the Pentagon simultaneously moved assets to the Middle East to strengthen U.S. military’s defensive capabilities and expand Trump’s options.

This comes after the president said Monday in another Truth Social post that “Everyone should immediately evacuate Tehran.” He also left the G7 summit in Canada early to deal with the situation in the Middle East, but did so without reaching trade agreements with some member nations.

French President Emmanuel Macron said Monday that Trump offered a ceasefire between Iran and Israel. However, Trump said his departure from the G7 had “nothing to do with a Cease Fire. Much bigger than that.”

“We’re all in a bit of a limbo in terms of whether anything substantive came out of the summit and whether Trump was alluding to new information with his post and his early G7 meeting departure,” Deutsche Bank strategist Jim Reid wrote.

Oil prices popped as the conflict escalated, reversing course from Monday’s declines that were fueled by signs Iran wanted a ceasefire with Israel. West Texas Intermediate crude futures and Brent futures each advanced more than 4%.

A weakening consumer

On top of the continued strikes between Israel and Iran, fresh retail sales data weighed on stocks Tuesday, as consumer spending retreated more than expected in May. Sales dipped 0.9% on the month, worse than the Dow Jones forecast for a 0.6% fall.

“The economy is slowing with consumers nervous about exactly what lies ahead and are choosing to save overall rather than flash some cash at the shops and malls,” said Chris Rupkey, Fwdbonds chief economist.

The data comes ahead of the Federal Reserve’s meeting this week, where the central bank is largely expected to hold rates steady. Ross Mayfield at Baird thinks it’s “too late” for the central bank to change its course in response to the retail sales data, but he believes the weaker report could give the Fed some room to take a more dovish stance.

“I definitely think that you want to see some dovish language acknowledge the economy cooling,” the investment strategist told CNBC. “July should be a live meeting, even though the fed funds futures aren’t pricing it in.”

Markets were last pricing in two quarter-percentage-point cuts this year, starting at the Fed’s September meeting, per CME Group’s FedWatch tool.