U.S. equities reversed earlier gains and turned lower on Tuesday after Iran declared that the Strait of Hormuz would remain closed until its conditions are satisfied, sending oil prices higher and weighing on investor sentiment.

The S&P 500 was trading 0.3% lower as of 2:08 p.m. in New York, giving up an earlier advance as Brent crude climbed above $88 per barrel. Energy, utilities, and industrial stocks all moved higher, while large-cap technology shares dragged the index down. The tech-heavy Nasdaq 100 fell 0.4%.

Mark Hackett, Chief Strategist at Nationwide Funds Group, said the lack of progress on a peace deal with Iran and climbing oil prices are putting "some modest pressure" on equities, "but relative to last week's rally, investors are taking the news in relative stride."

The move underscores how quickly geopolitical headlines can spill into broader market pricing, particularly when energy costs are already feeding into expectations for inflation and Federal Reserve policy. Even so, Tuesday's reaction suggested investors were treating the selloff as a risk event to monitor rather than a wholesale shift in market sentiment.

Inflation Data in Focus

Tuesday's choppy session comes ahead of closely watched consumer and producer price data that will shape expectations for a potential Federal Reserve interest rate hike in September. According to Bloomberg-compiled data, the recent surge in oil prices has led markets to price in a nearly 50% probability of a rate increase.

Analysts remain divided on the near-term trajectory of inflation and interest rates. Douglas Beath, global equity strategist at Wells Fargo Investment Institute, cautioned that "elevated refined energy product prices and some increasing stickiness in core services — especially rents and medical care — make a less sanguine near-term inflation outlook."

In contrast, Citigroup analyst Andrew Hollenhorst expects CPI data to reveal cooling in prices outside the energy sector, shifting attention back to domestic economic drivers.

Economists surveyed by Bloomberg project that the U.S. consumer price index rose 0.1% in July, following a 0.4% decline the prior month. The Bureau of Labor Statistics is scheduled to release the figures on Wednesday. Bloomberg Economics forecasts that core CPI could fall to its lowest year-over-year reading since March 2021, with energy expected to subtract 11 basis points from the headline number.

"Investors are increasingly pricing a scenario in which inflation continues to ease, the Fed remains patient, and earnings growth justifies elevated valuations," wrote Daniela Hathorn, a senior market analyst at Capital.com. However, she noted that a hotter-than-expected CPI reading would push Treasury yields and the U.S. dollar higher, "forcing markets to reconsider whether the recent optimism around policy and valuations is justified."

Skepticism Persists

With rising interest rates and Middle East hostilities remaining key wildcards, skeptics are holding firm. Data from the American Association of Individual Investors shows that bears have outnumbered bulls in the stock market in 20 of the past 25 weeks — a level of persistence last observed following President Donald Trump's rollout of global tariffs.

On the economic data front, the National Federation of Independent Business released its Small Business Optimism Index on Tuesday, showing that U.S. small business sentiment rose in July to its highest level in a year. The survey also found that the net share of small businesses planning to add jobs reached its highest point since October 2022, while inflation concerns eased. Separately, U.S. existing home sales fell to a three-month low in July as elevated prices and mortgage rates continued to pressure the housing market.

Earnings and Sectors to Watch

CoreWeave Inc. and Super Micro Computer are both scheduled to release earnings after Tuesday's close. CoreWeave's shares have experienced significant volatility since its IPO last year, with the latest downturn beginning after its first-quarter earnings report in May. The company indicated that the benefits of its capital expenditures should begin materializing in the second half of this year, making management's forward guidance more critical than ever.

According to Bespoke Investment Group, technology stocks are raising earnings guidance at a faster pace than any other sector this earnings season.

Energy stocks extended gains as the Strait of Hormuz remains shut.

Hyperscaler infrastructure companies are in focus as Super Micro and CoreWeave report earnings Tuesday afternoon. Both stocks climbed following TSMC's results.

Sneaker and apparel stocks came under pressure after On Holding AG reported disappointing second-quarter sales and cut its full-year revenue outlook. Peers including Nike, Puma, and Adidas also traded lower, while Under Armour received a downgrade from Barclays Plc.

This story was originally featured on Fortune.com.