Wall Street Drops On Rising U.S.-China Tensions Over Taiwan

Wall Street's major indexes fell in choppy trading on Tuesday on rising U.S.-China tensions as House of Representatives Speaker Nancy Pelosi's support to a democratic Taiwan prompted China to announce "targeted military operations".

The latest geopolitical uncertainty comes at a time when financial markets are struggling to grapple with the fallout of the Ukraine war, an energy crisis in Europe, soaring inflation and tightening financial conditions.

Shares of chipmakers with a large exposure to China struggled to gain, while industrial bellwether Caterpillar added to the slide, dropping 4.5% as slowing construction activity in the world's second largest economy added to its supply-chain woes.

"China will retaliate in some way. I don't think we're going to get into a physical war but there's going to be some type of retaliation - it could be on the trade front or on a number of things," said Dennis Dick, retail trader at Triple D Trading.

Shares of U.S. defense companies Raytheon Technologies Corp, Lockheed Martin Corp, Northrop Grumman Corp and L3Harris Technologies Inc rose between 1.4% and 2.9%. The United States is Taiwan's main supporter and arms supplier.

"This market just wants an excuse to buy stocks, there's this fear of missing out that is going on right now," Dick said.

At 14:06 p.m. ET, the Dow Jones Industrial Average was down 263.12 points, or 0.80%, at 32,535.28, the S&P 500 was down 11.46 points, or 0.28%, at 4,107.17, and the Nasdaq Composite was up 1.64 points, or 0.01%, at 12,370.62.

The CBOE volatility index, also known as Wall Street's fear gauge, eased from the day's high of 24.68 points and the Philadelphia SE semiconductor index erased early losses to add 0.4%.

A largely upbeat second-quarter reporting season has supported markets recently, with the benchmark S&P 500 index up more than 13% from lows hit in mid-June.

Uber Technologies Inc jumped 16.8% after the ride-hailing firm reported positive quarterly cash flow for the first time ever and forecast upbeat third-quarter operating profit.

Tesla Inc gained 2.1% after Citigroup hiked its price target on the electric-car maker's stock saying it is constructive on Tesla's leading premium EV position.

Pinterest Inc surged 11.4% as the activist investor Elliott Investment Management become the largest shareholder of the digital pin-board firm.

Declining issues outnumbered advancers for a 1.13-to-1 ratio on the NYSE. Advancing issues outnumbered decliners by a 1.12-to-1 ratio on the Nasdaq.

The S&P index recorded two new 52-week highs and 30 new lows, while the Nasdaq recorded 36 new highs and 60 new lows.