NEW YORK, New York - U.S. stocks tumbled on Thursday after the Houthi rebels in Yemen attacked two oil tankers in the Red Sea, dramatically escalating the U.S. war against Iran.

Oil prices surged, and bond prices plummeted on the escalation.

"We have been cautious for some time heading into the seasonally weak fall period for markets and the midterm elections," Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, told CNBC Thursday. "The continuation of the conflict is one more reason to rebalance and keep some dry powder for the possibility of a larger drawdown," Samana said.

The Standard and Poor's 500 dropped 90.79 points, or 1.21 percent, to finish at 7,408.17. The benchmark index traded within a daily range of 7,376.00 on the low side and 7,450.12 at its peak, as selling pressure intensified throughout the afternoon session. Volume on the index reached 3.192 billion shares, reflecting heavy participation as institutional investors rotated out of riskier positions.

The blue-chip Dow Jones Industrial Average fared slightly better but still suffered a significant loss, shedding 507.59 points, or 0.97 percent, to close at 51,710.99. The Dow moved between an intraday low of 51,542.06 and a high of 51,885.14, with losses broad-based across cyclical and defensive sectors alike. Trading volume for the Dow totaled 482.024 million shares.

The tech-heavy Nasdaq Composite bore the brunt of Thursday's selling, plunging 553.21 points, or 2.15 percent, to end the session at 25,137.69. The index was weighed down by sharp declines in mega-cap growth names, as rising Treasury yields continued to pressure high-valuation stocks. The Nasdaq's underperformance underscored the market's rotation away from growth and toward value and income-generating assets, a trend that has gained momentum in recent weeks.

Market strategists pointed to a confluence of factors behind Thursday's downturn. Geopolitical jitters after the Houthi movement's entry into the Middle East conflict added to anxieties, while the latest corporate earnings reports from several high-profile technology companies failed to meet elevated expectations. Additionally, stronger-than-expected economic data reignited concerns that the Federal Reserve may keep interest rates higher for longer, further weighing on growth-oriented equities.

Looking ahead, traders will focus on any fresh developments in the Middle East, with market participants bracing for continued volatility as the summer trading season enters a historically choppy period. The S&P 500 remains within striking distance of its recent highs, but Thursday's broad-based decline served as a stark reminder of the fragility underlying the current rally.

U.S. Dollar Gains Across the Board as Middle East Conflict Escalates with Houthi Entry

The U.S. dollar staged a broad rally against all major currencies on Thursday as geopolitical tensions in the Middle East intensified dramatically following the Houthi movement's formal entry into the ongoing conflict. Safe-haven demand propelled the greenback higher, with traders flocking to the dollar amid fears of a wider regional war that could disrupt oil supplies and global trade routes.

The escalation, which caught many market participants off guard, sent risk sentiment sharply higher and reinforced the dollar's status as the preferred defensive asset. Every major currency pair tracked on Thursday closed with the dollar stronger, as investors priced in heightened uncertainty and potential inflationary pressures from energy price spikes.

Against the euro, the dollar advanced as the EUR-USD pair traded at 1.1375, marking a decline of 0.32 percent for the single currency. The move reflected growing anxiety over Europe's vulnerability to energy disruptions, given the continent's reliance on Middle Eastern oil and gas shipments through the Red Sea and Suez Canal.

The dollar also gained ground against the Japanese yen, with USD-JPY climbing to 163.84, an increase of 0.42 percent. The yen, typically a safe-haven currency in its own right, underperformed the dollar as interest rate differentials continued to favor the greenback, while the geopolitical shock amplified demand for U.S. assets.

Sterling fell victim to the dollar's strength as well, with GBP-USD dropping to 1.3315, a loss of 0.45 percent. The British pound struggled amid broader risk-off flows, despite the Bank of England's ongoing efforts to combat inflation, as the Middle East crisis overshadowed domestic monetary policy considerations.

The Australian dollar, often seen as a proxy for global risk appetite and commodity demand, weakened against the resurgent greenback. AUD-USD slid to 0.6964, depreciating by 0.47 percent, as concerns over oil-driven inflation and potential disruptions to Asian trade routes weighed on the resource-linked currency.

In North American trade, the U.S. dollar edged higher against its Canadian counterpart, with USD-CAD rising to 1.4083, a modest gain of 0.03 percent. The Canadian dollar, buoyed by its own oil-exporting status, managed to limit its losses as crude prices rallied on supply fears, though it ultimately could not withstand the broad-based dollar bid.

Finally, the dollar strengthened against the Swiss franc, with USD-CHF advancing to 0.8168, an increase of 0.29 percent. The franc, another traditional safe haven currency, found itself overshadowed by the dollar's superior liquidity and the Federal Reserve's hawkish policy stance, even as tensions in the Middle East mounted.

"The Houthi entry into the conflict changes the calculus entirely," said one senior currency strategist in London. "The dollar is benefiting not just from safe-haven flows but also from the perception that the U.S. economy remains relatively insulated from direct fallout, while Europe and Asia face greater exposure to supply chain shocks."

Traders now look ahead to Friday's U.S. economic data and any further developments in the Middle East, with the U.S. dollar expected to remain well-supported as long as geopolitical risks persist. The broad-based gains across all major pairs underscored the greenback's dominant position in a market increasingly defined by uncertainty and flight to safety.

Global Stock Markets Close Mixed as Tech Rally Offsets European Losses; KOSPI Surges 4.4 Percent

World stock markets delivered a fragmented performance on Thursday, with Asian bourses largely advancing while European and stumbled under the weight of geopolitical concerns. The session was highlighted by a massive rally in South Korea, while London and Frankfurt suffered sharp pullbacks.

In London, the FTSE 100 dropped 77.80 points, or 0.73 percent, to close at 10,639.17. The index traded between a low of 10,610.38 and a high of 10,720.33, as mining and energy shares weighed on the British benchmark.

In Canada, the S&P/TSX Composite Index also finished lower, declining 292.45 points, or 0.82 percent, to 35,192.66. The Toronto market, heavily weighted toward energy and financials, managed to outperform its U.S. counterparts thanks to a rally in crude oil prices driven by escalating Middle East tensions. Nonetheless, the overall risk-off sentiment kept the index in negative territory, with volume of 239.105 million shares changing hands.

Germany's DAX P fell more sharply, losing 392.29 points, a decline of 1.56 percent, to finish at 24,763.12, after touching an intraday low of 24,696.59. In France, the CAC 40 was also under pressure, shedding 138.80 points, or 1.64 percent, to settle at 8,299.09, with its daily range spanning 8,279.58 to 8,376.54.

The broader EURO STOXX 50 Index declined by 106.82 points, or 1.69 percent, closing at 6,210.17, while the Euronext 100 Index gave up 23.56 points, a loss of 1.22 percent, to end the day at 1,911.09. Belgium's BEL 20 proved more resilient, slipping just 4.36 points, or 0.08 percent, to 5,692.64.

In Asia, the action was decidedly more upbeat. South Korea's KOSPI Composite Index skyrocketed by 299.19 points, an eye-catching gain of 4.40 percent, closing at 7,096.89 – by far the strongest performance among major benchmarks, driven by a tech-led rebound after recent selloffs. Hong Kong's HANG SENG INDEX advanced 318.15 points, or 1.28 percent, to finish at 25,210.81, recovering from a low of 24,876.83 and reaching a high of 25,267.39.

Australia saw modest gains: the S&P/ASX 200 added 16.00 points, up 0.18 percent, to 8,839.00, while the broader ALL ORDINARIES rose 13.20 points, or 0.15 percent, ending at 9,018.10.

In Japan, the Nikkei 225 climbed 307.00 points, a gain of 0.46 percent, to close at 66,422.60. Malaysia's FTSE Bursa Malaysia KLCI inched up 3.22 points, or 0.19 percent, to 1,714.59, and New Zealand's S&P/NZX 50 INDEX GROSS advanced 32.13 points, or 0.23 percent, to 13,795.31. Taiwan's TWSE Capitalization Weighted Stock Index eked out a fractional gain of 25.03 points, or 0.06 percent, to 44,850.81. China's SSE Composite Index rose 9.74 points, or 0.25 percent, closing at 3,876.78.

Conversely, India and Southeast Asia trended lower. The S&P BSE SENSEX dropped 363.66 points, a decline of 0.47 percent, to 76,391.39, while in Singapore Thursday, the STI Index fell 13.66 points, or 0.24 percent, to 5,581.76. Indonesia's IDX COMPOSITE lost 19.17 points, or 0.30 percent, settling at 6,315.31.

In the Middle East and Africa, Israel's TA-125 was flat, unchanged at 4,156.91 with no percentage movement, after trading between 4,115.30 and 4,201.84.

In Egypt, the EGX 30 Price Return Index dipped 57.70 points, or 0.11 percent, to 53,931.90, on volume of 479.155 million shares. South Africa's Top 40 USD Net TRI Index suffered one of the day's worst losses, plunging 216.98 points, or 3.26 percent, to 6,440.30.

(This report incorporates quotes retrieved with the assistance of artificial intelligence).

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