The day’s mood turned fast. A week that began with hopes of progress after President Donald Trump said productive talks had taken place about ending the war with Iran gave way to fresh doubt when Iran denied direct talks were underway and rejected a U.S. ceasefire proposal delivered via Pakistan, ABC News reported.

That shift mattered because markets were already trading on nerve rather than conviction. Once the headlines moved back toward escalation, investors did what they usually do: they sold first and asked questions later.

Iran’s tightening grip on the Strait of Hormuz sharpened the fear. ABC News said the country may be creating something like a “toll booth” for tankers in the narrow waterway, which typically sees a fifth of the world’s oil exit the Persian Gulf.

That is enough to rattle traders even before the actual damage shows up in prices. Energy flows, shipping costs and inflation expectations all move together when the Strait gets politicized.

The tension kept building through Thursday. Fighting continued, thousands more U.S. troops neared the region, and Trump posted a harsh warning to Iranian negotiators on social media before softening his tone minutes after Wall Street closed, delaying his threat to “obliterate” Iranian power plants until April 6, ABC News reported.

That kind of policy swing is not easy for markets to digest. Traders can discount a bad outcome. They have a harder time with a moving target.

ABC also noted that high Treasury yields and bond-market disruption were among the reasons Trump cited a year ago when he backed off his initial tariff threats on “Liberation Day.” The point is not that history repeats neatly. It is that markets remember when threats turn into rates, and rates turn into pain.

Oil did its part too. Brent crude rose 4.8% Thursday to settle at $101.89 a barrel, up from roughly $70 before the war began, while benchmark U.S. crude climbed 4.6% to $94.48, ABC News reported.

That matters because oil is not just another commodity. It is a cost that threads through transport, manufacturing and consumer prices in a way almost nothing else does.

The Fed is already dealing with stubborn inflation. At its March 18 meeting, the central bank left its policy rate unchanged at 3.50% to 3.75%, and Chair Jerome Powell said the U.S. economy has been expanding at a solid pace, the Fed transcript shows.

But Powell also said estimates based on CPI and other data put total PCE inflation at 2.8% over the 12 months ending in February, while core PCE rose 3.0%. Those are not panic numbers, but they are not the kind of readings that leave the Fed eager to cut rates into an oil shock.

Powell added that the U.S. is a net exporter of energy, so higher oil prices can help domestic producers even as they hit consumers. He also said gas prices are up almost a dollar a gallon, the Fed transcript shows. Good luck explaining that part to anyone filling a minivan.

Rising yields made the selloff worse. The 10-year Treasury yield jumped as high as 4.43% Thursday, from 4.33% late Wednesday and 3.97% before the war started, ABC News reported. When yields go up, future earnings are worth less in today’s dollars, which is bad news for the expensive growth stocks that still dominate the indexes.

That is the link from Hormuz to the Nasdaq. Oil up, yields up, valuations down.

Thursday’s drop hit a market that was already under strain. Meta fell 8%, Alphabet dropped 3.4% after both had held up better the day before the landmark social-media addiction verdict, Nvidia slid 4.2%, and Amazon lost 2%, ABC News reported.

The biggest tech names have been losing their grip for a while. As of early March, the Magnificent Seven were collectively underperforming the broader market for the first time since the post-pandemic recovery, with Microsoft down 18.8% year to date and Tesla down 12.7%, while the equal-weight S&P 500 had gained 7.0%, FinancialContent/MarketMinute reported on March 3.

That is rotation, plain and simple. Money has been moving out of a small group of giant tech names and into a broader market.

Nvidia’s recent trading has been a tell. In February, the chipmaker fell 4.2% on the day it reported solid earnings, a sign that even strong results were no longer enough to satisfy investors, as uncertainty over AI spending and returns kept pressure on the sector, Reuters reported on February 27.

So the Nasdaq correction is not just a war story. It is a valuation story that was already in motion before the latest headlines from the Middle East turned the heat up. Thursday simply made the break look more sudden than it was.

The market is not reacting only to the war itself, it is reacting to the uncertainty around it. Morningstar said its U.S. Market Index had already fallen 3.49% through March 23, before Thursday’s additional losses, and its analysts said volatility should remain elevated even if the conflict in Iran moderates, Morningstar reported on March 26.

The broader economy is not flashing the same alarm. The Fed’s March projections call for real GDP growth of 2.4% this year, the unemployment rate to stay around 4.4%, and the federal funds rate to drift toward 3.4% by year-end, the Fed transcript shows.

That gap between the economy and the stock market is where a lot of the current pain lives. Reuters said corporate America finished fourth-quarter earnings season with profit growth above 14%, yet stocks still sold off, Reuters reported on February 27. Strong earnings help, but they do not cancel out fear or pricing that was already stretched.

April 6 now stands out as the next market test, Trump’s self-imposed deadline before a possible escalation against Iranian energy infrastructure. Whether that date brings more diplomacy or another round of threats, investors have shown they are willing to swing hard in both directions. For now, the market looks less like it is searching for a trend and more like it is trying to survive the next headline.