US equity markets extended their decline for a second consecutive session on Wednesday, retreating sharply from recent record highs. The S&P 500 fell 1.1%, the tech-heavy Nasdaq Composite dropped 1.6%, and the Dow Jones Industrial Average shed 333 points. This broad sell-off was driven by a confluence of factors including disappointing corporate earnings guidance, escalating geopolitical tensions, and lingering concerns over Federal Reserve independence.
The earnings season opened on a mixed note, with financial stocks acting as a major drag. Wells Fargo shares fell more than 4% after reporting weaker-than-expected Q4 revenue and disappointing net interest income projections. Bank of America, despite beating profit expectations, saw its stock slide roughly 5% due to concerns over its future net interest income guidance. The tech sector also underperformed, with semiconductor giants like Nvidia, Broadcom, and Arm Holdings each falling at least 2% amid fears of China supply chain disruptions.
Geopolitical risks intensified, with President Donald Trump announcing a 25% tariff on nations conducting business with Iran and escalating military rhetoric. This triggered a surge in oil prices, with Brent crude nearing $65 per barrel and West Texas Intermediate climbing to $60.60. Analysts attributed a $3 to $4 per barrel "geopolitical risk premium" to the possibility of disrupted Iranian crude exports. The risk-off sentiment fueled a rally in traditional safe havens, with gold and silver prices reaching record levels.
Economic data presented a mixed picture. The Producer Price Index for November 2025 rose 0.2% month-over-month, accelerating slightly and pushing the annual rate to 3.0%, above forecasts. Conversely, US retail sales rebounded strongly, rising 0.6% in November to $735.9 billion, exceeding expectations. Both data releases were delayed due to backlogs from last year's prolonged government shutdown.
Political pressure on the Federal Reserve added another layer of uncertainty. President Trump continued public attacks on Fed Chair Jerome Powell, amplifying concerns over central bank independence as the Justice Department conducts a criminal investigation into Powell. This comes as the Fed is widely expected to pause further interest-rate cuts after multiple easings late last year.
Further unsettling markets, the Supreme Court unexpectedly postponed its ruling on the constitutionality of Trump's tariffs, leaving traders in limbo regarding potential trade policy shifts and billions in possible refunds. The combination of these factors led investors to seek protection via put options and hedges, signaling heightened market unease.
