U.S. Stocks Fall as Middle East Tensions Lift Oil Prices and AI Chip Export Rules Hit Tech Sector

U.S. stocks closed lower on Thursday as rising oil prices and geopolitical tensions in the Middle East unsettled investors, while reports of potential U.S. restrictions on AI chip exports weighed on semiconductor stocks. The market finished well above its intraday lows but still ended the session in negative territory.

The benchmark S&P 500 declined 0.6% to close at 6,829.45, while the tech-heavy Nasdaq Composite slipped 0.3% to 22,748.99. The Dow Jones Industrial Average led the losses, dropping 1.6% to end the day at 47,954.19. Market sentiment turned cautious as crude oil prices climbed toward $80 per barrel amid escalating conflict between Iran and Israel.

According to Michael O’Rourke, chief market strategist at Jones Trading, investors shifted toward a risk-off stance as energy prices surged and geopolitical uncertainty intensified. Some traders attempted to rotate funds into large-cap technology stocks, often referred to as the “Magnificent Eight,” seeking stability. However, that strategy faltered after reports surfaced that the Trump administration was drafting rules that could restrict global shipments of advanced AI chips without U.S. approval.

Bloomberg reported that the proposed regulations would require companies like Nvidia and AMD to obtain U.S. government approval before exporting AI accelerators worldwide. The move would significantly expand existing restrictions that currently apply to about 40 countries. Shares of Nvidia dropped sharply following the news, contributing to broader weakness across the semiconductor sector.

Not all chipmakers struggled. Broadcom shares jumped nearly 5% after the company posted stronger-than-expected quarterly earnings and revenue. Broadcom also forecast $10.7 billion in AI semiconductor revenue for the current quarter and announced a share buyback program worth up to $10 billion.

Meanwhile, economic data offered some support to markets. Challenger job cuts fell sharply to 48,307 in February from 108,435 in January, signaling improved labor market conditions. Weekly jobless claims remained steady at 213,000, slightly better than expectations. Investors are now focusing on the upcoming U.S. nonfarm payrolls report for further insight into labor market strength.

Oil prices remained volatile as geopolitical tensions escalated. Iran launched another wave of missiles at Israel, marking the sixth consecutive day of hostilities. At the same time, Iran-linked attacks on tankers passing through the Strait of Hormuz threatened a key global energy supply route that carries roughly 20% of the world’s oil and liquefied natural gas shipments.

Brent crude rose 3.6% to $84.27 per barrel, while U.S. West Texas Intermediate crude jumped 6.5% to $79.47. Both benchmarks have now climbed for five consecutive sessions, with Brent reaching its highest level since July 2024.

The growing conflict has also raised concerns about inflation and global economic stability. International Monetary Fund Managing Director Kristalina Georgieva warned that prolonged tensions could push energy prices higher, weaken market sentiment, and place additional pressure on policymakers worldwide.

Despite strong U.S. economic indicators, analysts say expectations for near-term Federal Reserve rate cuts continue to fade. Deutsche Bank analysts noted that the probability of a rate cut by June has dropped to 39%, reflecting skepticism that the Fed will ease policy while economic data remains robust. Investors now await Friday’s nonfarm payrolls report, which could provide the next major signal for markets and Federal Reserve policy expectations.