Wall Street Drops As Trump Weighs Iran Action, Defense Stocks Jump: What's Driving Markets Tuesday?

Wall Street took a sharp and unexpected turn lower by midday Tuesday as geopolitical fears surged following an Axios News report that President Donald Trump will meet with his national security team in the White House Situation Room to decide U.S. policy regarding the escalating war between Israel and Iran.

According to Axios, U.S. officials said Trump is seriously considering direct military intervention, including a potential strike on Iran's underground uranium enrichment facility in Fordow. The situation began unfolding after Trump abruptly left the G7 summit in Canada late Monday and called for Iran's "unconditional surrender" on Tuesday.

Iran swiftly responded by ordering evacuations in Tel Aviv and Haifa, intensifying fears of regional war.

Major U.S. stock indexes fell in midday trading, as investors digested the threat of U.S. involvement in another Middle East conflict.

Stocks Fall, Solar Sector Gets Hammered By Senate Bill

The S&P 500 declined 0.5% to 6,000 points, and the Nasdaq 100 slid by over 130 points, or 0.6%, to 21,800.

Volatility spiked during the session as the CBOE Volatility Index, commonly known as the VIX or Wall Street’s fear index, surged 7.6%.

Treasury yields plunged, with 30-year yields down 6 basis points to 4.90%. The dollar rallied reflecting appetite for safe havens.

Oil price soared 1% to $72.5 a barrel. Sector-wise, energy was the lone area in the green, buoyed by expectations of rising crude prices if the Middle East conflict intensifies.

In contrast, the consumer discretionary and healthcare sectors led the market's losses, with the latter penalized by fresh advertising restrictions.

Defense contractors rallied sharply as the specter of military conflict lifted expectations for increased government defense spending. RTX Corp. RTX advanced 1.2%, Lockheed Martin Corp. LMT climbed 2.9% and Northrop Grumman Corp. NOC gained 1.6% by midday.

Meanwhile, a draft version of the Senate's "Big Beautiful Bill" revealed plans to phase out all federal tax credits for solar and wind energy projects by 2028. These incentives were established under the 2022 Inflation Reduction Act.

The announcement triggered a broad selloff across solar-related stocks. The Invesco Solar ETF TAN plunged 9% in midday trading. Among individual names, Sunrun Inc. RUN collapsed 40%, SolarEdge Technologies Inc. SEDG dropped 35%, and Enphase Energy Inc. ENPH fell 25%. Industry bellwether First Solar Inc. FSLR lost 18%.

Tuesday’s Performance In Major US Indices, ETFs

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Image created using artificial intelligence via Midjourney.