Wall Street’s rally fades as ME angst overshadows earnings optimism

NEW YORK: Wall Street’s main indexes were subdued on Tuesday, as renewed concerns about the Middle East war halted an early rally in stocks and overshadowed earnings optimism.

Pakistan is still awaiting a formal response from Iran to confirm that it will send a delegation to attend a second round of peace talks with the US in Islamabad, the country’s Information Minister Attaullah Tarar said in a post on X.

The talks are scheduled against a fragile backdrop. In an interview with CNBC earlier, US President Donald Trump said he does not want to extend the ceasefire with Iran, which is set to expire soon.

A failure to resume the discussions could swiftly upend investors’ assumptions that peak uncertainty related to the war has passed.

At 11:52 a.m. ET, the Dow Jones Industrial Average fell 87.88 points, or 0.18 percent, to 49,354.68, the S&P 500 lost 19.21 points, or 0.27 percent, to 7,089.93 and the Nasdaq Composite slipped 38.08 points, or 0.16 percent, to 24,366.32.

All the indexes were in positive territory earlier in the session.

Investors are also parsing comments from Kevin Warsh, Trump’s nominee to lead the Federal Reserve, whose confirmation hearing was underway in the Senate on Tuesday.

He called for “regime change” at the US central bank that would include a new “framework” for controlling inflation and a possible overhaul of how it communicates with the public about monetary policy.

Republican Senator Thom Tillis has promised to block Warsh’s confirmation until the Department of Justice ends an investigation into current Fed Chair Jerome Powell that Tillis says threatens the central bank’s independence.

The impasse could have far-reaching implications for monetary policy, especially as Trump has vowed to fire Powell if he does not leave when his term ends in May.

“The risk now is that if new leadership under Warsh does not take hold by mid-June, the Fed could delay that 25 bps rate cut and maintain a ‘wait-and-see’ stance instead,” said Atakan Bakiskan, US economist at Berenberg.

Optimism around AI and upbeat earnings have given investors some reason to cheer.

J.P. Morgan raised its year-end target for the S&P 500, citing AI and tech-driven earnings, while Amazon said on Monday it will invest up to USD25 billion in Anthropic, signaling Big Tech is still willing to pour money into AI.

Amazon shares rose 1.8 percent, helping the S&P 500 consumer discretionary sector advance 0.4 percent. Energy stocks rose 0.5 percent, thanks to a jump in crude prices.