U.S. stocks continued to decline during Monday's early session, with the Dow Jones Industrial Average falling more than 300 points. A joint U.S.-Israel strike on Iran triggered a surge in oil prices, adding Middle East instability to the growing list of investor concerns. Energy and defense stocks advanced, while technology, banking, airline, and travel sectors declined.
The Dow dropped 303.80 points, or 0.62%, to 48,674.12. The Nasdaq Composite fell 115.02 points, or 0.51%, to 22,553.19. The S&P 500 declined 34.87 points, or 0.51%, to 6,844.01. As investors sought safety, gold futures rose by 3%. The CBOE Volatility Index (VIX), a key gauge of market fear, jumped to its highest level since 2026. Over the weekend, a joint U.S.-Israeli operation resulted in the death of Iran's Supreme Leader Ayatollah Ali Khamenei, marking a watershed moment for the Islamic Republic and one of the most significant events in the country since 1979. U.S. President Donald Trump told media that the military action in Iran was "ahead of schedule." Despite these remarks, investors remained concerned that the conflict could prolong. Iranian officials have vowed a strong retaliation, raising fears that the conflict could spread across the region. Barclays analyst Ajay Rajadhyaksha stated in a report, "The tail risk of a prolonged conflict is higher in 2024 or 2025, but we do not expect the war to escalate to a degree that fundamentally alters the U.S. outlook." However, he noted that at the start of the week, "it is too early to buy the dip, especially when investors have grown accustomed to a rapid de-escalation pattern." U.S. crude oil prices rose 7% as investors worried that the confrontation could escalate into a broader war and disrupt supplies. Iran is the fourth-largest oil producer in OPEC. The trajectory of oil markets may depend on whether the fighting disrupts traffic through the Strait of Hormuz, the world's most critical chokepoint for crude shipments. Sustained disruption there could ripple through global energy markets and reignite inflationary pressures. Adam Hetts, Global Head of Multi-Asset at Janus Henderson Investors, said, "Broader uncertainty is dampening investor sentiment, which could weigh on global risk assets broadly. In a prolonged period of uncertainty, rising oil prices could trigger a global inflation scare." Following the attack, Northrop Grumman and Lockheed Martin rose 5% in early trading, while defense peer RTX gained over 6%. Energy stocks such as Exxon Mobil and Chevron climbed 4% and 3%, respectively. However, risk-off sentiment pushed most stocks lower, with technology and banking shares leading the decline. Broadcom led chip stocks lower. Amazon and Alphabet declined. Morgan Stanley and Goldman Sachs also fell. Geopolitical escalation further complicated an already fragile stock market backdrop. The S&P 500 fell on Friday and closed within its February decline zone, amid renewed turbulence in artificial intelligence and software stocks. Concerns that automation could erode business models and trigger large-scale layoffs weighed on market sentiment, sparking fears of broader economic spillover effects. In a client note regarding the Middle East conflict, Citi equity strategists wrote, "Overall, we assume the impact will be short-lived, but the possibility of more lasting friction on equities cannot be ruled out. We must also consider this new volatility event alongside a growing list of concerns. That said, the AI investment boom appears set to continue, but the promise of productivity is rapidly being challenged by AI-driven business model disruption."
