Dow drops 900 points as oil surges ahead of Fed rate decision

U.S. stocks fell sharply on Wednesday as oil prices surged following Iran's surprise missile attack on American forces in the Middle East, with markets also bracing for the Federal Reserve's interest rate decision later in the day.

The Dow Jones Industrial Average was down more than 900 points, or about 1.7%, while the S&P 500 lost 1.1% and the Nasdaq Composite declined roughly 1.4%.

West Texas Intermediate crude futures climbed 6.9% to $89.88 a barrel after President Donald Trump pledged that the U.S. would strike Iran "hard" in retaliation. U.S. Central Command announced late Tuesday that Islamic Revolutionary Guard Corps forces had fired multiple ballistic missiles at American troops in the Middle East in what it described as a surprise attack, with all incoming missiles successfully shot down.

"The news today unfortunately turned back to Iran, and that's something we did not anticipate when the day began," Jay Woods, chief market strategist at Freedom Capital Markets, told CNBC. "Any Fed surprise could cause this sell off to accelerate."

The Fed is widely expected to hold its benchmark rate steady in its current target range of 3.5% to 3.75%, though a rate hike remains possible. Traders put the odds of a hike at roughly one in three, according to The Wall Street Journal. Fed Chair Kevin Warsh is scheduled to hold a press conference following the decision on Wednesday afternoon.

Semiconductor stocks continued to lose ground, with the iShares Semiconductor ETF off more than 4% and the PHLX Semiconductor Index down about 4.6%. Chip stocks have shed 10% this week, according to CNBC, as investors grow uneasy about whether massive outlays on artificial intelligence will pay off and whether Chinese rivals pose a greater threat. Micron Technology shares lost 5%, Advanced Micro Devices declined more than 5%, and KLA tumbled more than 8%.

Procter & Gamble stock slid more than 3% after the consumer goods giant fell short of revenue estimates for the quarter. Ford Motor stock gained 5% after the automaker topped earnings expectations and lifted its outlook for the full year.

Investors are also watching earnings from Meta and Microsoft, both due after the close of trading Wednesday.