On Tuesday, the S&P 500 dropped 0.3%, trimming its gains for June. The Dow Jones Industrial Average slipped 0.2%, and the Nasdaq 100 fell by 0.4%. This sell-off came as a mix of economic and geopolitical worries sparked risk-off behavior among investors. A string of weak data points from the U.S. economy drove uncertainty. Retail sales fell for the second month in a row, showing that American consumers—who drive over two-thirds of the economy—are becoming cautious. Meanwhile, industrial production also declined, hurt by a slowdown in utilities and manufacturing. In the housing market, builder confidence dropped to its lowest since December 2022, reflecting slowing demand.

According to Bret Kenwell from eToro, “The economy and the consumer are holding up for now, but there are signs of vulnerability. That could present risks in the second half of the year—especially if we see a further slowdown in jobs or spending.”

By midday, all three major indexes were in the red: The selling came as traders digested downbeat macro data and kept a wary eye on geopolitical headlines.

With weak economic indicators piling up, market participants are ramping up bets on Federal Reserve rate cuts. The Fed begins its two-day policy meeting in Washington today, and while no changes are expected in June or July, futures markets are now pricing in nearly two quarter-point cuts before the end of the year, with the first one fully expected in October. Seema Shah of Principal Asset Management noted, “The Federal Reserve is navigating a narrow path. We expect the Fed to wait until the fourth quarter before it reduces policy rates.” Even so, the Fed may use Wednesday’s meeting to update its economic and interest rate forecasts, which could signal more clearly what’s ahead. President Donald Trump—who has criticized the Fed in the past—could react strongly if policymakers delay cuts, especially as political pressure mounts in an election year.

With economic data weakening and inflation showing signs of moderation, traders are increasingly betting the Fed could begin easing:

That said, the Fed is expected to at this week’s meeting, but its tone and economic projections will be closely watched. Investors were hit with disappointing numbers on multiple fronts: The data painted a picture of a slowing economy, adding to concerns that the consumer-driven post-pandemic recovery is losing steam. Beyond the economic slowdown, geopolitical tensions are making investors nervous. Israel and the United States are increasing pressure on Iran, stoking fears of more direct military involvement. Reports suggest that recent Israeli attacks on Iranian nuclear sites may trigger retaliation.

President Trump, after cutting short his visit to the G7 summit in Canada, stated that he wants to put a permanent end to Iran’s nuclear ambitions, heightening concerns of further conflict.

According to Kenny Polcari at SlateStone Wealth, “Markets will remain mostly on edge until they lower the temperature in the region.” The rising cost of oil due to Middle East risks could also complicate the Fed’s fight against inflation, particularly if crude oil prices stay elevated for long.

Tensions between Israel and Iran continued to escalate, now entering their fifth day. U.S. crude oil surged by over , and Brent crude was up nearly , adding to last week’s already steep gains of up to 11%.

President Donald Trump issued a sharp warning urging Americans to , signaling rising risks of direct U.S. involvement in the conflict. That spooked markets further and pushed energy prices higher.

While US stocks have dominated global markets for years, that may be changing. According to Bank of America’s latest fund manager survey, only 23% of respondents expect US equities to be the best-performing asset class over the next five years. In contrast, 54% see international stocks taking the lead.

Just 13% are backing gold, and a mere 5% believe bonds will offer the best returns. This is the first time Bank of America asked investors to predict the top-performing asset class over a five-year period.

Meanwhile, consumer and tech sectors dragged on the broader indexes, reflecting growing caution over spending and demand. Several major companies made headlines on Tuesday: Here’s a snapshot of Tuesday’s major market moves:

Market volatility is creeping back in, with the rising over 4% today. Analysts warn that prolonged conflict in the Middle East, coupled with shaky consumer demand, could drive more downside risk.

RBC Capital noted the S&P 500 could retreat to the if inflation re-accelerates and the Fed stays hawkish in response to higher oil prices.

• More : industrial production, housing starts, and import/export prices
• Ongoing developments in the and any U.S. military or diplomatic responses

Stocks dropped due to weak US economic data and growing tensions in the Middle East.

Q2. Will the Federal Reserve cut interest rates this year?
Traders expect rate cuts later in the year, possibly starting by October.