U.S. stocks close mixed as Iran-Israel conflict continues

U.S. stocks finished mixed on Friday over the deepening Iran-Israel conflict and speculation about whether the United States will become directly involved.

Markets were volatile throughout the session, with the Dow Jones Industrial Average inching up 35.16 points, or 0.08 percent, to 42,206.82. In contrast, the S&P 500 declined 13.03 points, or 0.22 percent, to 5,967.84, while the Nasdaq Composite Index lost 98.86 points, or 0.51 percent, closing at 19,447.41.

Sector performance was divided, with six of the S&P 500's 11 primary sectors finishing in red. Communication services and materials led the declines, down 1.83 percent and 0.66 percent respectively. Energy stocks benefited from the geopolitical uncertainty, rising 1.05 percent, while consumer staples gained 0.62 percent.

Tensions in the Middle East continued to loom large over market sentiment. Iran's Foreign Minister Abbas Araghchi reaffirmed Tehran's willingness to continue diplomatic talks with Germany, France, Britain, and the European Union, following discussions in Geneva. However, the White House said Thursday that President Donald Trump would decide within two weeks whether to involve the U.S. militarily in the conflict, intensifying pressure on Iran to return to the negotiating table.

"Investors are a little bit nervous about buying stocks right in front of this situation and, more specifically, right in front of this weekend," said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

The escalating conflict has raised fears of a broader regional war and sent safe-haven assets like U.S. government bonds higher. The two-year Treasury yield fell 3.8 basis points to 3.907 percent, while the 10-year yield dropped 2.2 basis points to 4.374 percent. The 30-year yield slipped just under 1 basis point to 4.889 percent, all reaching their lowest levels since June 12.

On the monetary policy front, investors digested comments from Federal Reserve officials following the central bank's decision to keep interest rates steady. Fed Chair Jerome Powell warned that inflation could accelerate in the coming months. However, views within the Fed remain split. Fed Governor Christopher Waller indicated support for a rate cut as early as the next meeting, while Richmond Fed President Tom Barkin suggested a more cautious approach, citing no immediate need for action.

In corporate news, Kroger emerged as the top performer in the S&P 500. The supermarket giant reported stronger-than-expected profits and raised its same-store sales forecast, citing robust performance in pharmacy, fresh food, and e-commerce. Shares of CarMax also advanced after the used-car retailer posted better-than-anticipated earnings, buoyed by higher retail vehicle sales.

Despite growing geopolitical risks, Wall Street has shown resilience in recent weeks. However, with inflation pressures, tariff uncertainties, and the specter of a widening conflict in the Middle East, markets remain on edge heading into the second half of the year.