Iran asked Yemen's Houthi movement to prepare to close the Red Sea oil route if the U.S. strikes Iranian power infrastructure, sources told Reuters on Thursday, injecting fresh geopolitical risk into markets already navigating chip-sector weakness and second-quarter earnings. The threat underscores how Tehran's proxy network can weaponize critical shipping lanes, a tactical reality that's driven oil-price volatility and weighed on airline stocks even as broader markets showed resilience.
The S&P 500 slipped 0.08% to 7,566.63 by mid-morning, while the Nasdaq fell 0.60% to 26,111.19 as semiconductor stocks dragged. The Dow Jones Industrial Average rose 0.25% to 52,792.58, buoyed by healthcare and defensive sectors. United Airlines fell 1.4% as a renewed surge in oil prices weighed on its third-quarter and full-year profit outlooks, illustrating how Middle East tensions translate directly into corporate earnings pressure.
The Chip Sector Stumbles
The Philadelphia SE Semiconductor index fell 3.5%, led by sharp declines in storage and foundry stocks. U.S.-listed shares of TSMC dropped 2.1%, while Sandisk fell about 10%, Western Digital was down 8%, and Seagate Technology slid 7.5%. The selloff overshadowed an otherwise upbeat start to second-quarter earnings, with AI-related jitters cited as one driver of recent volatility.
UnitedHealth raised its 2026 profit forecast, sending its shares up 4.3% and keeping the Dow afloat. Abbott jumped 12% after beating quarterly estimates and lifting its annual profit outlook. Defensive groups, including consumer staples and real estate, rose about 2% each, while healthcare shares gained 2.2%. The divergence between growth and defensive sectors reflected investor caution amid geopolitical uncertainty.
Economic Data Points to Resilience
Investors parsed June retail sales data that showed only a marginal rise as lower gasoline prices weighed on receipts at service stations, though bargain-hunting consumers continued to support underlying spending. The number of Americans filing claims for unemployment benefits fell last week, pointing to continued labor market stability. Stephen Brown, chief North America economist at Capital Economics, said the data suggests "consumption appears to be gaining some momentum, which, at the margin at least, provides some support to our forecast that the Fed will raise interest rates later this year."
Benign inflation reports for June earlier this week reduced worries over any imminent rate hike by the Federal Reserve. Markets were pricing in an 88% chance the Fed would hold rates steady at this month's meeting and about a 50% chance of a quarter-point hike in September, according to CME's FedWatch tool. The economic backdrop—resilient consumers, stable labor markets, and moderating inflation—has supported risk assets even as geopolitical threats loom.
Wall Street Banks Post Blowout Earnings
Wall Street's biggest banks found few reasons to complain this earnings season. Investment bankers were busier than they have been in years, trading desks thrived on volatility, and resilient consumers kept lending businesses humming. Global investment banking revenue topped $60 billion in the first six months of the year, Dealogic data showed, with JPMorgan leading the league tables, followed by Goldman Sachs and Morgan Stanley. Wall Street's mega-IPOs and multibillion-dollar deals fueled a surge in investment banking fees, lifting them to their highest level since the pandemic-era boom of 2021.
Stock trading delivered blowout results as volatile markets kept trading desks on their toes in the second quarter. AI-related jitters, Middle East tensions, and swings in energy markets drove client activity. Market turbulence is often good for trading desks because sharp price swings encourage investors to reposition portfolios, hedge risks, and seize short-term opportunities. Brian Mulberry, senior client portfolio manager at Zacks Investment Management, said: "Consumer spending is solid, consumer credit remains durable and commercial defaults appear to be declining."
Steady loan demand supported higher net interest income in the second quarter. Consumers remained resilient and spending stayed healthy, helping sustain borrowing. All six major U.S. banks trounced Wall Street's second-quarter profit expectations, with several analysts and investors describing the scale of the earnings beats as extraordinary. Executives cited healthy pipelines and strong backlogs for the second half, fueling expectations that the investment banking super cycle still has further to run.
Why This Matters:
Iran's threat to close the Red Sea through its Houthi proxies isn't rhetorical—it's a tactical lever Tehran has used before to pressure the West without direct confrontation. The Red Sea carries roughly 12% of global seaborne oil trade, and any disruption would spike energy prices, hit airline earnings, and ripple through consumer spending. The market's divergent response—defensive sectors up, growth stocks down—reflects uncertainty over whether geopolitical risks will derail the economic momentum that's driven corporate profits and kept the Fed cautious on rate hikes. Wall Street's blowout earnings show the U.S. financial system thriving on volatility, but that volatility is increasingly driven by actors like Iran who can weaponize infrastructure chokepoints. The question isn't whether markets can absorb these shocks—it's how long resilient consumer spending and corporate earnings can offset the strategic risks emanating from the Middle East.