Wall Street ended lower on Monday as renewed tensions in the Middle East rattled sentiment, even as investors continued to bet on an eventual diplomatic breakthrough between the US and Iran.
The S&P 500 slipped around 0.2%, while the tech-heavy Nasdaq Composite fell about 0.3%, snapping its 13-day winning streak after logging three consecutive record closes last week. The Dow Jones Industrial Average was largely flat, edging marginally lower, while the small-cap Russell 2000 bucked the trend to rise 0.5% and hit a fresh intraday high.
The cautious close followed a chaotic weekend that reignited geopolitical risks. Iran signalled that the Strait of Hormuz would not remain open during the ongoing ceasefire with Lebanon, while the US seized an Iranian vessel off the coast of Oman. The developments cast fresh doubt over already fragile peace talks.
US President Donald Trump said Washington had taken custody of an Iranian-flagged cargo ship under sanctions, adding that authorities were inspecting its contents. He also warned of potential escalation if Tehran failed to agree to US terms, even as a ceasefire between the two sides is set to expire this week.
Oil markets reacted sharply. West Texas Intermediate crude surged nearly 6.9% to settle at $89.61 per barrel, while Brent crude jumped about 5.6% to $95.48, reversing part of Friday’s steep decline. The spike reflects renewed concerns over supply disruptions tied to the Strait of Hormuz, a critical global shipping route.
Also read: Risk-off mood hits premarket: Dow futures slide amid Hormuz worries
Despite the volatility, underlying market sentiment remained relatively resilient. Traders appeared reluctant to fully price in a worst-case scenario, especially after equities rebounded sharply from near-correction territory to record highs in recent sessions.
At this point, the stock market appears to have largely overlooked the Iran war and its associated risks. In a note, Bank of America’s global economist Claudio Irigoyen cautioned that investors may be extrapolating past playbooks too quickly.
“Why is the US stock market trading back at pre-war levels? We think the stock market is extrapolating the trade war playbook… This means that as the administration signals de-escalation, markets price a quick resolution, with limited impact on growth and some impact on inflation, hence interest rates remain higher,” he said. “But the risk with the war is that de-escalation is no longer a unilateral move, and the market may be underpricing that risk.”
Sectorally, software stocks provided some cushion, with the iShares Expanded Tech-Software Sector ETF rising over 1%, even as broader indices declined.
Looking ahead, markets are gearing up for a crucial earnings week, with companies like Tesla, Intel, and United Airlines set to report. Their results are expected to test whether the recent rally can sustain momentum amid rising geopolitical uncertainty.
