Wall Street falls as hopes for US-Iran deal weaken

Wall Street closed lower on Tuesday as fading hopes for a diplomatic breakthrough between the United States and Iran heightened uncertainty over the Middle East conflict and its potential impact on energy prices.

The latest setback came after Iran's newly appointed secretary of the Supreme National Security Council said the Strait of Hormuz would remain closed unless Washington changed its approach and accepted Tehran's conditions for ending the war.

The comments added to concerns about the outlook for global energy supplies, with Brent crude futures trading near one-week highs in volatile conditions.

"It's just really hard to come to an agreement that works for everyone," said Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky.

"Oil is a little higher, pricing in more uncertainty around that."

Mayfield said the conflict had caused periods of volatility in financial markets but had so far failed to become the major drag on equities that some investors had initially feared.

Technology stocks were among the biggest contributors to Tuesday's decline. Amazon and Alphabet both fell, weighing on the S&P 500 and Nasdaq Composite, while SpaceX also moved lower.

The declines came as investors balanced geopolitical concerns against continued optimism surrounding corporate earnings and artificial intelligence investment.

Shares of alternative asset managers Apollo Global Management and Blackstone rose. Both companies were among financial institutions that recently partnered with Nvidia on computing-financing platforms designed to mobilise more than $500 billion for artificial intelligence infrastructure.

Preliminary figures showed the S&P 500 fell 25.32 points, or 0.33%, to finish at 7,727.79. The Nasdaq Composite dropped 160.36 points, or 0.60%, to 26,445.00, while the Dow Jones Industrial Average declined 188.41 points, or 0.35%, to 53,787.57.

The S&P 500 reached record territory last week after a series of strong quarterly earnings reports helped bolster investor confidence. The Nasdaq, however, remained about 2% below its record closing high from June 2.

Investors have also been encouraged by signs that heavy spending by major technology companies, including Microsoft and Amazon, on artificial intelligence data centres is beginning to generate returns.

Attention is now turning to key US inflation data due over the next two days. Consumer and producer price figures are expected to play an important role in determining expectations for the Federal Reserve's next interest-rate decision.

Markets remain divided over the prospect of an interest-rate hike at the Fed's September meeting, according to the CME FedWatch tool.

The uncertainty has been compounded by rising energy prices linked to the conflict with Iran. Higher oil costs could place renewed pressure on inflation, potentially making it more difficult for central banks in the US and elsewhere to ease monetary policy.

For investors, the combination of geopolitical uncertainty, volatile oil prices and incoming inflation data is likely to keep markets on edge in the days ahead.