Traders on the New York Stock Exchange faced a challenging start to the week as stock futures dropped following the U.S. military’s escalation in the Middle East. Over the weekend, the U.S. carried out strikes against three Iranian nuclear sites, a move ordered by President Donald Trump that raised immediate concerns regarding oil prices and the potential for expanded conflict in the region.
Futures associated with the Dow Jones Industrial Average fell by 126 points, approximately 0.3%. The S&P 500 and Nasdaq 100 futures experienced declines of 0.26% and 0.35%, respectively.
The attacks on Fordo, Isfahan, and Natanz caught investors off guard, as many anticipated continued diplomatic efforts. Trump’s warning on Friday about the timing of military action seemed to suggest a possibility for discussion, but the sudden strikes changed the dynamics. Oil prices have surged recently amid increasing tensions, and on Sunday night, U.S. crude oil futures jumped by 3.8%, nearing $77 a barrel.
Jay Woods, chief global strategist at Freedom Capital Markets, noted that conflicts often trigger exaggerated market reactions that can persist for a few weeks. He referenced past events, such as the market’s 6% decline following the Ukraine crisis exacerbated by rising oil prices.
In Trump’s Saturday evening address following the attacks, he stated, “there will be either peace, or there will be tragedy for Iran far greater than we have witnessed over the last eight days,” emphasizing the stark choices ahead.
Market participants are now on high alert for potential Iranian retaliation, which could involve targeting U.S. personnel at nearby military bases or disrupting the Strait of Hormuz, a crucial passage for global oil shipments. Such actions could push oil prices beyond the $100 per barrel mark. In support of deterrent measures, U.S. Secretary of State Marco Rubio called for China, Iran’s key oil customer, to intervene to prevent disruptions.
Ahmad Assiri from Pepperstone pointed out that with the U.S. now deeply involved in the conflict, the baseline for oil prices has shifted to the mid-$80s per barrel. Even a minor chance of conflict escalation increases the premium on crude prices significantly.
Last week, the S&P 500 faced its second consecutive weekly loss, down 0.15%. Despite these setbacks, the index is still hovering about 3% away from a record high, suggesting resilience amidst growing economic uncertainties. The developments in the Middle East coupled with the swift changes in global trade initiated by the Trump administration could further challenge the markets in the weeks ahead.
While these events introduce volatility, the potential for diplomatic resolutions still exists, which could stabilize not only oil prices but also support market recovery.