Escalating tensions between the US and Iran have placed a fragile ceasefire under significant strain, simultaneously driving oil prices higher and contributing to a pause in the US stock market's recent advance on Wednesday.

The S&P 500 index closed down 0.7%, halting a nine-session winning streak.

The Nasdaq 100 index fell 0.3%, with software stocks declining for a second consecutive session.

An IG chief market analyst commented, "What we are witnessing is no longer a fragile ceasefire but more akin to a low-intensity conflict. This indicates the critical issue of oil supply remains unresolved."

Fresh clashes occurred overnight between the US and Iran, with impacts felt in Kuwait and Bahrain.

Tensions have been building throughout the week, and the situation has been further complicated by Israeli military actions in Lebanon.

Beyond the Middle East situation, investors are also focused on economic indicators.

US private sector job growth in May reached its highest level since January 2025, suggesting the labor market may be gaining momentum despite rising energy costs stemming from the conflict with Iran.

A chief US economist at Fifth Third Commercial Bank noted, "The tailwinds from fiscal and monetary policy, the artificial intelligence boom, and the fading of last year's policy uncertainty are offsetting the headwinds from the Iran war."

As market risk appetite cooled, the rally in artificial intelligence-related stocks paused. A basket of AI stocks compiled by UBS fell 1.4%, ending a four-day run of gains.

Despite the broad pullback in AI-themed shares, Marvell Technology Group Ltd. rose 3.7%, extending its strong gains from Tuesday.

At the close, the S&P 500 index was down 0.7% at 7,553.68 points.

The Dow Jones Industrial Average fell 1.2% to 50,687.07 points.

The Nasdaq Composite Index declined 0.9% to 26,853.97 points.

The Nasdaq 100 index decreased 0.3% to 30,571.24 points.