Stocks poised to drop amid Israel-Iran war, weak consumer spending

Wall Street stock futures retreated early Tuesday as the war between Israel and Iran escalated and the government released unexpectedly weak retail sales data.

Dow futures fell 173 points, or 0.40%, to 42,691. S&P 500 futures shed 22.25 points, or 0.37%, to trade at 6,067.50. Nasdaq futures were down 86.50 points, or 0.39%, to 22,081.75.

The sharp pullback came as global investors reacted to headlines of escalating military conflict in the Middle East, with Israel and Iran trading lethal missile barrages.

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.

Retail sales data released by the Commerce Department earlier Tuesday showed weaker-than-expected consumer activity, stoking concerns that high interest rates are beginning to weigh on household spending.

Retail sales dropped 0.9%, exceeding the 0.6% decline projected by economists surveyed by Dow Jones.

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

The report comes against a backdrop of rising geopolitical tensions and concerns about potential tariffs.

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.