Wall Street is giving in due to interest rate fears, high oil prices and AI concerns

The Fed's next interest rate decision is approaching and the majority of US investors are expecting an increase. High oil prices as a result of the Iran war and AI fears in the software industry are also weighing on the mood on Wall Street.

Fears of further escalation in the Iran war and reluctance to release important US inflation data have weighed on Wall Street. While oil prices rose to just under $100 for the first time in weeks due to geopolitical tensions, software developers in particular came under pressure.

The Dow Jones standard value index lost 1.2 percent to 52,786 points. The technology-heavy Nasdaq fell 0.3 percent to 26,421 points and the broad S&P 500 lost 0.6 percent to 7,674 points.

Investors are eagerly awaiting this week's producer and consumer price reports. These are considered crucial for the US Federal Reserve's next interest rate decision on September 15th and 16th. After a surprisingly strong US labor market report for August, traders now expect a rate hike with a 60 percent probability, according to the CME stock exchange's FedWatch tool. In addition, the recent rise in yields on safe US government bonds made buying stocks less attractive for investors.

AI sends software stocks plummeting

The introduction of the new GPT-6 Astra model from OpenAI caused unrest in the technology sector. Concerns that artificial intelligence (AI) could increasingly replace services from specialized software companies sent shares of Salesforce, ServiceNow and Intuit plummeting. The S&P software and services industry index fell for the second day in a row.

Astra has reignited fears of disruption in the software industry, said Jed Ellerbroek, portfolio manager at Argent Capital Management. "This has revived the old trend that we had become accustomed to for a while: semiconductor stocks and data center investment beneficiaries are doing well, while software stocks are doing poorly." Accordingly, Intel and Qualcomm rose after entering into an agreement with Amazon to develop customized AI chips.

Apple fell a day before an event where the company, under new boss John Ternus, is expected to unveil its latest smartphone. Crypto stocks like Coinbase and MicroStrategy fell on Tuesday as Bitcoin moved away from the $80,000 mark.

S&P 500 is up twelve percent

Another negative factor for the stock market was the war between the USA and Israel with Iran. After Iran-backed Houthi rebels in Yemen attacked and set fire to Saudi energy facilities, oil prices rose to a six-week high. Shipping traffic through the Strait of Hormuz slowed, especially as Iran threatened retaliation for any new US attacks on Monday.

The conflict is starting to look less like a temporary disruption and more like a longer-term background scenario for the markets, said Jeff DerGurahian, chief investor at loanDepot. Energy companies such as Marathon Petroleum and Occidental Petroleum benefited from rising oil prices and their shares rose.

Despite the recent losses, the S&P 500 is up around twelve percent so far in 2026 and is only around one percent below its record high of August 13th. According to LSEG data, the benchmark index is currently valued at 19 times expected earnings, down from a multiple of 21 in early June. This lower rating reflects increased earnings expectations following a strong second quarter reporting season.