Wall Street snapped a nine-day winning run on Wednesday, as technology stocks slipped and fresh strikes in the Gulf darkened hopes for an imminent U.S.-Iran peace deal.

The benchmark S&P 500 index slipped 0.7% to end at 7,555.82 points, the tech-heavy NASDAQ Composite shed 0.9% to close at 26,853.98 points, and the blue-chip Dow Jones Industrial Average declined 1.2% to settle at 50,688.43 points.

“Today’s pullback looks more like rotation than a change in the broader trend. Big-cap tech has been on a strong run, and we’re seeing some near-term profit taking in areas most tied to the AI theme, including tech, communication services, and consumer discretionary,” Keith Lerner, chief investment officer and chief market strategist at Truist, told Investing.com.

“At the same time, the market is broadening out under the surface. Seven sectors are higher today, led by energy, which we are overweight, and is benefiting from rising oil prices as uncertainty around a potential Iran deal persists. Higher oil is also putting some upward pressure on rates. We’re also seeing a move into more defensive areas like staples,” he said.

“Bottom line, the bull market still deserves the benefit of the doubt, supported by solid earnings and resilient economic data. But after such strong gains in growth areas, expectations are higher, which is likely to lead to a bumpier path in the near term,” Lerner added.

U.S. and Iran trade fresh strikes

Tensions between Washington and Tehran continue to rise amid growing uncertainty over the state and extent of peace talks between the warring parties. The U.S. military on Tuesday said it had fired upon and disabled an unladen oil tanker attempting to sail toward an Iranian port.

U.S. Central Command also said it had successfully repelled multiple Iranian missiles and drones launched at Kuwait and Bahrain, and had conducted self-defense strikes on Qeshm island in response to the attacks. Meanwhile, Iranian state media said the country’s armed forces had targeted the U.S. Fifth Fleet headquarters in Bahrain and a neighboring U.S. base in retaliation for the strike on Qeshm.

The latest military action dented hopes that the U.S. and Iran may be approaching a deal to end their more than three-month old war, even as President Donald Trump stressed that talks between Washington and Tehran were ongoing. Key sticking points in the negotiations involve Iran’s nuclear ambitions and the reopening of the critical Strait of Hormuz. A flare-up in fighting between Israel and Hezbollah-backed targets in Lebanon recently has also become a new point of contention.

Axios on Monday reported that Trump had criticized Israeli Prime Minister Benjamin Netanyahu on a phone call over the escalation in Lebanon. The president in a podcast released on Wednesday said he wasn’t “angry” at Netanyahu when asked about the reported phone call.

“I was a little bit perturbed at his constantly fighting with Lebanon. At some point, I said, ’Bibi, we gotta stop this’ … but we’ve worked very well together,” Trump said. For his part, Netanyahu on Wednesday told CNBC in an interview that while he and Trump might have “tactical disagreements” over how to handle the Iran war, they “agree on many things.”     

Media reports on Wednesday said Iran had proposed a structured four-phase roadmap aimed at reaching a peace deal with the U.S., citing Iran’s Fars News Agency.

The first phase would involve the complete cessation of military operations on all fronts, followed by the lifting of blockades, removal of oil sanctions, and a reopening of the Strait of Hormuz. The third phase would see broader negotiations on sanctions and nuclear issues, followed by the establishment of a supervisory committee to monitor the implementation of the four-phase plan.

Against this backdrop, oil prices rose on Wednesday, with Brent crude futures, the global oil benchmark, last up 2.2% to $98.07 a barrel. The advance underscored worries over an energy-induced spike in inflationary pressures that could persuade central banks — including the Federal Reserve — to eventually hike interest rates. Gold prices retreated, while the U.S. dollar firmed.

Trump in the podcast stressed that oil prices would retreat when the Iran conflict concludes and argued that inflation is not “very much” at the moment. He also claimed that Iran had agreed not to have a nuclear weapon.

Tech stocks slip even as chip names extend rally

Away from the Middle East, the S&P 500 technology sector slipped on Wednesday, halting a four-day advance. Palo Alto Networks was a notable loser, with shares ending 5.6% lower despite the cybersecurity giant delivering a beat-and-raise quarterly report.

Chip stocks were higher, however, with the Philadelphia Semiconductor Index — a key barometer of the semiconductor space — posting a ninth positive session in 11. The climb has come amid a slew of developments in the artificial intelligence industry over the last few days, including a mammoth $80 billion capital raise from Alphabet, which was upsized to nearly $85 billion on Tuesday, and Anthropic beating rival OpenAI in the first step to becoming a public company.

“Having only announced earlier this week that it planned to raise $80 billion in the largest stock market fundraise on record, Google-owner Alphabet has upsized this to $85 billion,” Danni Hewson, head of financial analysis at AJ Bell, said. 

“The increased total implies there is no shortage of appetite for the stock as the company builds up its financial firepower in an effort to compete in the AI arms race with other hyperscalers like Microsoft, Meta and Amazon,” she said. 

“The need to go to the market for fresh funds represents a significant turnaround from a situation a few years ago when Alphabet was generating enormous amounts of free cash flow linked to its cloud computing business. This demonstrates both the speed and scale of spending on AI, but for now it is an investment which many market participants seem willing to countenance,” Hewson added.

A furious advance in the overall AI trade has helped U.S. stocks shake off the Iran war and reclaim all-time high levels. On Tuesday, all three major Wall Street indexes logged a record close for a fifth consecutive session, a streak not seen since 2017.

Another strong labor market indicator ahead of May jobs report

Market participants on Wednesday were also focused on the U.S. economic calendar, with the highlight ADP’s monthly report on the state of the private sector. Job growth in the sector was 122k in May, the biggest increase since January 2025, with gains in eight out of ten sub-sectors.

The data showed that the U.S. labor market continued to strengthen after a period of cooling towards the end of last year. The May nonfarm payrolls report scheduled for Friday will give another major indication on the state of job growth. With labor trends looking positive, it has given the Fed some space to focus squarely on the inflation part of its mandate amid surging oil prices due to the Iran war.

“For now, financial markets are focused on the risk that inflation shocks from the Iran War and tariffs force the Fed to raise rates. That’s possible, but it would require the closure of the Strait of Hormuz to persist through the midterm elections. Is that plausible?” Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said. 

“On the other hand, if the inflation shocks from the Iran War and tariffs fade, job growth will likely hold at its current pace. In that scenario, a tightening labor market would likely displace inflation as the Fed’s main area of focus,” Adams added.

The Fed on Wednesday also released its latest Beige Book, with economic activity increasing at a slight to moderate pace in 10 of the 12 central bank regional districts.  

Elsewhere, data from the Institute for Supply Management (ISM) on the U.S. services sector came in strong on the surface, but also showed inflationary pressures. ISM’s headline services PMI index ticked up to 54.5 in May, better than expected and accelerating from April. The report also showed that for the third month in a row, no commodities saw a decrease in prices. The overall prices index posted its highest reading since August 2022.

Broadcom earnings on tap

Turning to Wednesday’s active stocks, Broadcom settled 0.5% lower ahead of its quarterly results after the closing bell.

GameStop added 6.1%, after the video game retailer announced a 14% rise in quarterly revenue and authorized a new $2 billion share buyback program.

Macy’s climbed 0.7%. The department store operator beat quarterly top- and bottom-line estimates and raised its full-year guidance, as its store overhaul strategy showed signs of gaining traction.