Wall Street’s major indexes fell sharply on Thursday and the Nasdaq backed a correction as investors worried about an escalation in the US-Israeli war against Iran, which has boosted oil prices and fueled inflation worries.

President Donald Trump said Iran must make a deal with the US or face continued aggression, while warning that taking control of Iran’s oil was an option. A senior Iranian official told Reuters the US proposal to end nearly four weeks of fighting was “one-sided and unfair”, while stressing that diplomacy was not over.

Oil prices jumped on the lack of clear signs of progress, with US crude futures settling up 4.6% compared with a 5.7% advance for Brent futures.

As a result, the stock index erased gains from Wednesday as investors bet on a de-escalation in the war, which has disrupted oil shipments through the Strait of Hormuz.

‘Fog of War’

“The back and forth seems to be happening at a rapid pace. On top of that, we don’t know who Trump is negotiating with,” said Doug Beith, global equity strategist at Wells Fargo Investment Institute. “There are a lot of conflicting signals, and it’s really the fog of war, the uncertainty of it all that’s driving this.”

According to preliminary data, the S&P 500 fell 114.79 points, or 1.74%, to close at 6,476.89, while the Nasdaq Composite lost 513.56 points, or 2.34%, to 21,416.27. The Dow Jones Industrial Average fell 481.68 points, or 1.04%, to 45,955.00.

The technology-heavy Nasdaq closed down more than 10% from its Oct. 29 closing high, confirming that it has been in a correction since that date.

Noting that stock markets have been generally weak on Friday since the Iran war began a month ago, Peter Tuz, president of Chase Investment Counsel, said the S&P 500 could follow the Nasdaq in confirming a correction.

“After three good years for the markets, a sell-off of 10%-20% should not surprise anyone. We had one last year during the tariff proposals. Bad technical indicators, however, can encourage selling and discourage buying until the situation clears up,” Tuz said.

Most of the S&P 500’s 11 largest industry sectors lost ground. Energy was the biggest gainer, while the biggest laggards included communications services and technology.

META, the Alphabet drop communications index, was under pressure after the verdicts when juries found Google liable in META and Alphabet’s first two trials and a growing wave of lawsuits accusing the social media firms of harming children.

In technology, chip stocks were the big drag, with the Philadelphia Semiconductor Index tumbling after three sessions of gains. Leading decliners in the Dow were shares of artificial intelligence chip leader Nvidia. Conflict in the Middle East has knocked the global economy off a path of robust growth, the OECD warned on Thursday, as the closing of the Strait of Hormuz threatens to push up inflation sharply.

With high oil prices stoking inflation fears, central banks are in a tight spot on interest rates, traders will not be pricing in any easing from the US Federal Reserve this year. According to CME Group’s FedWatch tool, two rate cuts were expected before the Iran conflict erupted. Earlier, data showed new applications for US jobless benefits rose slightly last week, suggesting a stable labor market and giving the Fed room to keep rates steady while monitoring the impact of the Iran war.

US-listed shares of gold miners including Sibanye Stillwater and Harmony Gold fell as bullion prices fell.