Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., August 26, 2025. REUTERS/Brendan McDermid/File Photo

By Purvi Agarwal and Ragini Mathur

(Reuters) -Wall Street's main indexes tumbled to a more than one-week low on Tuesday, as investors returning from a long holiday weekend confronted fresh uncertainty over the legality of President Donald Trump's tariffs.

A divided U.S. appeals court ruled on Friday that most of Trump's tariffs are illegal, but allowed for the levies to be in place until October 14. The Trump administration can still file an appeal with the Supreme Court.

Yields on longer-dated U.S. Treasuries rose on Tuesday, with ones on the 30-year notes at their highest levels in more than a month, pressuring equities.

The CBOE Market Volatility index also touched its highest mark in over four weeks and was last up 3.2 points at 19.3.

"With less tax revenue coming in, they're (the U.S.) going to have a higher financing rate because they have to pay bills and they're losing a source of income," said Michael Matousek, head trader at U.S. Global Investors, highlighting potential fiscal concerns if the ruling is upheld.

At 12:00 p.m. ET, the Dow Jones Industrial Average fell 533.57 points, or 1.17%, to 45,010.81, the S&P 500 lost 94.73 points, or 1.46%, to 6,365.73 and the Nasdaq Composite lost 395.27 points, or 1.84%, to 21,060.28.

Most S&P 500 sectors traded in the red, with tech stocks the biggest drags. Nvidia fell 3.8%, Apple lost 2%, while Microsoft was off 1.2%.

Conversely, a 2.6% gain in PepsiCo after Elliott Management disclosed a $4 billion stake in the beverages giant, launching an activist campaign, kept consumer staples stocks afloat.

Meanwhile, caution prevailed ahead of the August nonfarm payrolls report, due on Friday, which will follow a monthly private payrolls reading and job openings figures.

Markets are pricing in about a 91.2% chance of a 25-basis-point cut in interest rates at the Fed's meeting later this month, according to the CME Group's FedWatch tool.

Investors' dovish tilt came after July's weak job report, with Fed Chair Jerome Powell acknowledging the growing risks to the labor market at the Jackson Hole symposium, helping the S&P 500 and the Dow log their fourth consecutive month of gains in August.

The Nasdaq logged its fifth straight monthly gain last month.

"If you see indications that the economy is coming along and unemployment is dropping, that's a good sign... (Powell) might hold off on rates so he doesn't try to overheat the economy," said Matousek.

Markets are also entering seasonally dour September, which, according to DataTrek Research, is the only month since 1958 where the S&P 500's mean returns are negative.

An announcement from Trump related to the U.S. defense department later in the day will also be watched.

In stocks, gold miners gained after bullion prices hit a record high. U.S.-listed shares of Harmony Gold rose 7.3%, Barrick Mining gained 1.5% and Newmont added 1.9%.

Kraft Heinz fell 6.4%. The packaged goods giant will split into two listed companies.

Declining issues outnumbered advancers by a 3.61-to-1 ratio on the NYSE and by a 2.79-to-1 ratio on the Nasdaq.

The S&P 500 posted seven new 52-week highs and four new lows, while the Nasdaq Composite recorded 71 new highs and 75 new lows.

(Reporting by Purvi Agarwal and Ragini Mathur in Bengaluru; Editing by Pooja Desai and Maju Samuel)