An explosion reported aboard a South Korean merchant ship appeared likely to persuade commercial shippers the strait was still unsafe after US President Donald Trump said the US navy would open it.
Iran said it forced a US warship to turn back after it attempted to enter the strait, while the United Arab Emirates reported a fire at an oil installation following an Iranian drone attack.
Markets pull back from record highs
The renewed nervousness about the Middle East conflict comes after the S&P 500 and Nasdaq hit record highs last Friday amid a stronger-than-expected quarterly earnings season.
"With the market at all-time highs, there's not a lot of room for error, and it feels like the kind of big asymmetric risk is still to the downside, even if it's maybe not the most probable outcome that we get back into a hot war," said Ross Mayfield, an investment strategist at Baird Private Wealth Management.
S&P 500 companies are expected to post aggregate earnings growth of 28 per cent year on year for the first quarter, double the expectation of 14 per cent at the start of April, according to LSEG.
Wall Street's AI heavyweights account for much of that optimism.
Indexes close lower
The S&P 500 declined 0.41 per cent to end the session at 7,200.75 points.
The Nasdaq declined 0.19 per cent to 25,067.80 points, while the Dow Jones Industrial Average declined 1.13 per cent to 48,941.90 points.
Ten of the 11 S&P 500 sector indexes declined, led lower by materials, down 1.57 per cent, followed by a 1.17 per cent loss in industrials.
The energy index added 0.85 per cent.
Market breadth and volumes
Declining stocks outnumbered rising ones within the S&P 500 by a 2.2-to-one ratio.
The S&P 500 posted 26 new highs and 22 new lows; the Nasdaq recorded 126 new highs and 87 new lows.
Volume on US exchanges was relatively light, with 16.3 billion shares traded, compared with an average of 17.7 billion shares over the previous 20 sessions.
