Investors on Wall Street sold off stocks on Tuesday as all signs pointed to continued escalation in the Israel-Iran war with the US possibly set to join the fighting.

The Dow Jones Industrial Average fell 299.29 points, or 0.70%, to 42,215.80. The S&P 500 declined 50.39 points, or 0.84%, to 5,982.72, while the tech-heavy Nasdaq dropped 180.12 points, or 0.91%, to 19,521.09.

Small-cap stocks were also hit, with the Russell 2000 falling 22.17 points, or 1.04%, to 2,101.96.

Meanwhile, the CBOE Volatility Index (VIX) — Wall Street’s so-called “fear gauge” — surged 2.49 points, or 13.03%, to 21.60, reflecting elevated investor anxiety amid geopolitical uncertainty and softening economic data.

Oil prices surged more than 4% on Tuesday after President Trump threatened Iran’s supreme leader and called for an “unconditional surrender.” West Texas Intermediate rose $3.33 to $75.10 a barrel, while Brent crude gained $3.46 to reach $76.69.

The pullback came as traders assessed the growing possibility of a broader conflict in the Middle East and weighed the impact of softer-than-expected US retail figures released earlier in the day.

President Trump is weighing a variety of responses to Iran, including the possibility of launching a US military strike, according to administration officials.

On Tuesday, he convened a meeting with senior advisers in the White House Situation Room. Earlier in the day, Trump took to social media, stating that American forces were aware of the Iranian leader’s whereabouts but were opting not to act—adding pointedly, “UNCONDITIONAL SURRENDER!”

Trump had departed the G-7 summit in Canada ahead of schedule, asserting that his early exit wasn’t to broker a cease-fire in the escalating Israel-Iran conflict, but instead to address something, in his words, “much bigger than that.”

When pressed for details, the president declared he wanted “an end, a real end, not a cease-fire.”

Meanwhile, investors also reacted to less-than-stellar news about the economy.

Retail sales dropped 0.9% in May, falling short of economists’ forecasts and signaling that consumers may be pulling back amid lingering inflation and economic uncertainty, according to fresh data released earlier on Tuesday by the Commerce Department.

Weakness in key categories such as autos, gas, and building materials contributed to the slump, offsetting modest gains in online shopping and miscellaneous retail.

The combination of international turmoil and soft economic data has raised fresh doubts about the Federal Reserve’s next steps. While inflation has moderated in recent months, the central bank remains cautious amid signs of consumer weakness and geopolitical volatility.

Traders will be closely watching for additional commentary from Fed officials and upcoming economic indicators for clues about potential rate adjustments heading into the second half of the year.

US crude climbed 1.21% to $72.64 per barrel, extending gains from last week as markets priced in potential disruptions to energy supply chains.

The yield on the US 10-year Treasury note slipped to 4.419%, down 3.5 basis points, reflecting a flight to safety amid heightened uncertainty.

Bond yields typically fall when investors seek refuge from riskier assets like equities.

The retail sales figures are seasonally adjusted but not inflation-adjusted and follow a 0.1% dip in April.

Sales excluding automobiles also disappointed, sliding 0.3%, compared to expectations for a 0.1% increase.

However, a separate measure that strips out categories like auto sales, building materials and gas stations — known as the “control group” used in GDP calculations — rose 0.4%, offering a modest sign of resilience in core consumer activity.

Spending at building materials and garden centers tumbled 2.7% while lower energy costs pushed receipts at gas stations down 2%. Auto and parts dealers saw a 3.5% drop, and spending at bars and restaurants declined 0.9%.

There were some bright spots: miscellaneous store retailers posted a 2.9% gain, online sales climbed 0.9% and furniture store revenue increased 1.2%.

Economists had hoped for more resilient numbers ahead of the summer travel season, but the latest figures suggest momentum may be fading.

Investors will be closely watching the Federal Reserve’s next move as it continues to weigh inflation against signs of economic cooling. The central bank has held rates steady in recent months, but markets remain on edge as policymakers balance conflicting data points.

Together, geopolitical instability, economic softness, and inflation pressures have created a cocktail of volatility that may continue to weigh on markets in the days ahead.