Wall Street closed lower on Monday as renewed tensions in the Middle East shook investor sentiment, despite ongoing hopes for a diplomatic resolution between the US and Iran.
The S&P 500 dipped approximately 0.2%, while the tech-focused Nasdaq Composite declined around 0.3%, ending its 13-day winning streak after posting three consecutive record highs last week. The Dow Jones Industrial Average remained mostly unchanged, edging slightly down, while the small-cap Russell 2000 countered the trend with a gain of 0.5%, achieving a new intraday peak.
This cautious close followed a tumultuous weekend that heightened geopolitical tensions. Iran indicated that the Strait of Hormuz would not remain open during the ongoing ceasefire with Lebanon, while the US captured an Iranian vessel near Oman. These events cast new doubt on the already tenuous peace negotiations.
US President Donald Trump announced that Washington had taken control of an Iranian-flagged cargo ship under sanctions and mentioned that authorities were examining its contents. He also cautioned against potential escalation if Tehran did not comply with US demands, even with a ceasefire set to expire this week.
Oil markets reacted sharply, with West Texas Intermediate crude soaring nearly 6.9% to settle at $89.61 per barrel, while Brent crude increased by about 5.6% to $95.48, partially reversing the steep decline from Friday. This surge reflects renewed fears about supply disruptions linked to the Strait of Hormuz, a vital global shipping lane.
Also read: Risk-off mood hits premarket: Dow futures slide amid Hormuz worries
Despite the fluctuations, the underlying market sentiment appeared relatively strong. Traders seemed hesitant to fully account for a worst-case scenario, particularly after equities had rebounded sharply from near-correction territory to reach record highs in recent sessions.
Currently, the stock market seems to be largely dismissing the Iran war and its related risks. In a note, Bank of America’s global economist Claudio Irigoyen warned that investors might be prematurely analyzing historical playbooks.
“Why is the US stock market back at pre-war levels? We believe the stock market is drawing on the trade war playbook… This means that as the administration shows signs of de-escalation, markets price in a swift resolution, anticipating limited growth impact and a modest effect on inflation, thus keeping interest rates elevated,” he noted. “However, the danger with the war is that de-escalation isn’t solely a unilateral action, and the market might be underestimating that risk.”
By sector, software stocks offered some support, with the iShares Expanded Tech-Software Sector ETF climbing over 1%, even as broader indexes fell.
Looking forward, markets are preparing for a significant earnings week, with companies such as Tesla, Intel, and United Airlines scheduled to report. Their outcomes are anticipated to test whether the recent rally can maintain momentum in the face of rising geopolitical uncertainty.
