US stock markets declined for a second consecutive session, as signs of escalating tensions in the Middle East overshadowed optimism from the latest inflation report.

The S&P 500 index fell 1.6%, erasing modest early-session gains.

The Nasdaq 100 index dropped 2%, marking the first time since March it has recorded back-to-back daily losses exceeding 1%.

Eight of the 11 sectors within the S&P 500 closed lower, with technology, industrials, and materials leading the decline.

Defensive, high-dividend stocks bucked the downward trend, with consumer staples, energy, and real estate sectors moving higher.

The CBOE Volatility Index, which reflects market expectations for near-term volatility, climbed above 22, indicating heightened trader anxiety.

Market sentiment was cautious on Wednesday. Following a new round of overnight strikes, the US President stated that Iran would pay a price for stalling.

While the conflict with Iran pushed up energy prices and accelerated overall inflation, the core measure excluding food and energy rose less than anticipated.

Investor confidence was further dampened by ongoing questions regarding the Federal Reserve's future interest rate path and the sustainability of the S&P 500's recent rally.

The chief market analyst at IG noted, "Despite the inflation data throwing the market a lifeline, investors remain on edge."

Semiconductor manufacturers and other AI infrastructure companies fell for a second day. Leading chipmaker Nvidia declined 3.7%, Micron Technology dropped 4.7%, and Broadcom fell 5.1%.

Super Micro Computer was the worst performer in the S&P 500, plunging 28% after announcing plans for a $7 billion equity offering.

Energy stocks were boosted by rising oil prices. Chevron gained 1.6%, and ExxonMobil advanced 1.1%.

At the close, the S&P 500 was down 1.6% at 7,266.99 points.

The Dow Jones Industrial Average fell 1.9% to 49,918.78 points.

The Nasdaq Composite Index declined 2% to 25,169.5 points.

The Nasdaq 100 Index dropped 2% to 28,508.03 points.

The Russell 2000 Index decreased 1.1% to 2,835.462 points.