Crude oil prices surged dramatically, US equities erased prior losses, and gold appreciated on Modnay as financial markets processed anxieties surrounding the spread of hostilities involving Iran.
Market participants are bracing for turbulence across global energy platforms as developments unfold in the Middle East. While markets experienced sharp swings, volatility has thus far remained generally within expected parameters, with Wall Street anticipating potential further disruptions to oil and gas pricing.
Heightened tensions between the US and Iran triggered a flight toward safe-haven assets, prompting investors to purchase gold and the US dollar as places to safeguard capital amidst the upheaval. Here is a quick summary detailing market reactions to the evolving turmoil:
Global oil benchmarks traded at their highest levels in over eight months on Monday. Brent crude, the international measure, climbed 6.7% to $77.74 a barrel. This marks the peak valuation since US strikes targeted Iranian nuclear sites back in June.
Meanwhile, the US benchmark, West Texas Intermediate, advanced by 6.3%, reaching $71.23 per barrel, a high point also last seen in June. Oil rates had briefly spiked as much as 13% late Sunday before trimming gains, as investors held out hope for minimal prolonged market disruption.
Equities broadly retreated across the globe, though US stocks presented a mixed picture. The Dow concluded with a slight drop of only 73 points, or 0.15%, after having plunged almost 600 points earlier in the session. The broader S&P 500 and the tech-heavy Nasdaq managed to turn positive, rising by 0.04% and 0.36% respectively. The European benchmark Stoxx 600 fell by 1.61%, and Japan’s Nikkei 225 retreated by 1.35%.
Wall Street widely predicts the conflict will be relatively brief, even if intense. Historically, stock markets tend to look past geopolitical worries, quickly recovering once tensions subside. How high oil prices climb will be critical in determining the impact on corporate earnings.
As investors navigate this resurgence of geopolitical shocks, Wall Street is also contending with persistent weakness in technology and AI stocks, alongside concerns regarding the state of private credit markets, elevated valuations, and potential market complacency.
Wall Street’s fear gauge, the VIX, ticked up by 8% after briefly surging as high as 27% earlier.
Diesel fuel prices soared on Monday, outpacing crude gains and hitting their highest levels in over two years. European gasoil futures jumped by about 18%. US diesel futures rose by 12%—the largest single-day surge since 2022.
European natural gas futures leaped by 38%, marking their biggest one-day increase since 2022. Europe is bracing for the repercussions of energy market instability amid the raging Middle East conflicts. QatarEnergy, Qatar’s state-owned energy company, suspended liquefied natural gas output on Monday following an Iranian strike on its facility in Ras Laffan. US natural gas futures increased by more than 3%.
Gold prices rose 2%, trading at their highest point in a month. Gold briefly surpassed $5,400 per troy ounce before moderating its gains during Monday morning. Gold, traditionally viewed as a safe haven, has recently behaved with volatile swings akin to a meme stock. Nevertheless, the metal benefited from safe-haven demand on Monday as the US-Iran conflict injected renewed market uncertainty.
US Treasury bonds declined on Monday following initial gains on Sunday, as investors adjusted expectations regarding the potential inflationary impact of rising oil costs. Yields on US Treasuries, which move inversely to bond prices, fell on Sunday before reversing course and climbing on Monday. The yield on the 10-year Treasury note, which influences borrowing costs economy-wide, plummeted to 3.96% on Sunday—its lowest since November—before trading at 4.04% on Monday.
Bitcoin surged by over 5%, trading around $69,120 as of the day’s close. The cryptocurrency initially saw a slight dip before rallying on Monday. Bitcoin has seen a slowdown this year, falling over 40% from its all-time high reached last October.
While broader markets trended lower, specific sectors such as defense and airlines experienced significant shifts. Shares of defense contractors Northrop Grumman (NOC), RTX Corporation (RTX), and Lockheed Martin (LMT) climbed by 6%, 4.7%, and 3.37%, respectively.
Airline stocks declined as investors and businesses grappled with the uncertainty shadowing the Middle East and the proximity of major hubs like Dubai to the conflict zone. Shares of major US carriers American Airlines (AAL), Delta Air Lines (DAL), and United Airlines (UAL) fell by 4.2%, 2.2%, and 2.9% respectively. Concurrently, Air France stock dropped 9.4%, and Lufthansa shares fell 5.2%.
“Our view is that markets are generally holding up alright considering everything,” stated Krishna Guha, Vice Chairman at Evercore ISI, in a memo released Monday.
Guha noted that a scenario where oil trades near $80 a barrel, coupled with a relatively short conflict duration, would result in a limited economic impact globally. However, a scenario pushing oil prices above $100 would represent a “qualitatively different event,” bringing far more severe shocks to the world economy.
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