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Global markets turned risk-averse on Monday after US and Israeli strikes on Iran widened Middle East tensions. Stocks fell across major regions, while the US dollar, oil, and gold moved higher as investors reacted to supply risks and inflation concerns.
By mid-morning in New York, the S&P 500 had fallen 0.5%, the NASDAQ 100 dropped 0.5%, and the Dow Jones Industrial Average lost 0.6%. In Europe, the Stoxx Europe 600 declined 1.6%, while the MSCI World Index fell 0.9%. The moves reflected broad caution, with selling pressure hitting most sectors.
Market data showed a strong shift into defensive positioning. The Bloomberg Dollar Spot Index rose 0.7%, while the euro fell 0.8% to $1.1716, and the British pound dropped 0.5% to $1.3411. The Japanese yen also weakened 0.9% to 157.47 per dollar. At the same time, traders reduced expectations for near-term rate cuts as higher energy prices raised inflation risks.
US government bonds also came under pressure. The yield on the 10-year Treasury rose eight basis points to 4.02%. Germany’s 10-year yield increased six basis points to 2.71%, and Britain’s 10-year yield climbed 13 basis points to 4.36%. Those moves signaled concern that central banks may face a harder path if energy costs remain elevated.
Oil led the day’s moves as supply fears intensified. West Texas Intermediate crude rose 6.1% to $71.11 a barrel in one reading and traded near $72.07 in later market snapshot data, up 7.54%. The jump marked the biggest oil surge in about four years, according to the market summary provided.
The sharp rise followed reports that tanker traffic through the Strait of Hormuz had nearly stopped and that a major Saudi refinery halted operations. Diesel futures also surged, while European liquefied natural gas prices rose after disruptions linked to Qatar output. These developments increased concern over energy supply reliability in a key producing region.
Sector performance reflected the energy shock. Energy companies and defense contractors gained, while airline shares fell on expected fuel cost pressure and travel disruptions. Premarket moves highlighted the split, with Lockheed Martin, RTX, L3Harris, and Northrop Grumman rising strongly, while United Airlines and Delta Air Lines declined.
Chris Larkin at E*Trade from Morgan Stanley said uncertainty around oil prices could shape broader market sentiment. He noted that a stable energy picture could support risk assets, but a longer disruption could pressure markets further.
The market reaction also showed a clear repricing of inflation and rates. Rising oil prices pushed traders to trim rate-cut bets in the US, UK, and euro area. Higher energy costs can feed into transport, manufacturing, and consumer prices, which may slow central bank easing plans.
Treasuries did not act as a strong safe haven during the early move. Instead, yields rose as investors focused on the inflation impact of oil. The 10-year Treasury yield rebounded after reaching recent lows last week, and analysts pointed to past oil supply shocks that often weakened longer-dated bonds over time.
Gold attracted haven demand more clearly. Spot gold rose 1% to $5,333.86 an ounce in one market update and later traded near $5,385.01, up 2.01%. The metal briefly topped $5,400, showing that investors sought protection outside sovereign debt during the session.
Wall Street strategists presented different views on the likely duration of the equity weakness. Morgan Stanley’s team, led by Mike Wilson, said geopolitical shocks often do not cause lasting declines in US stocks unless oil prices surge sharply and stay high. The bank kept a constructive view on US equities over the next six to 12 months under that condition.
RBC strategist Lori Calvasina urged caution on using historical “buy the dip” patterns in isolation. She said investors should assess geopolitical events within the broader market backdrop, including growth, inflation, and policy risks. This view reflected concern that this episode may interact with existing pressures in global markets.
Julius Baer’s Mathieu Racheter also highlighted the wide range of outcomes, from a quicker political exit to broader regional spillover. For now, markets continue to price probabilities rather than clear endpoints. As a result, oil prices, conflict headlines, and central bank expectations will likely remain the main drivers of short-term market direction.
