Markets Steady as Iran War Lifts Oil, Yields

US equities swung sharply on Monday as investors reacted to US and Israeli attacks on Iran and subsequent retaliatory strikes across the Middle East. Major indexes fell more than 1% intraday before rebounding to end narrowly mixed.

The S&P 500 (SPX) finished with a gain of less than 0.1%, up 2.74 points to 6,881.62, after earlier losses of up to 1.2%. The Nasdaq Composite rose about 0.3%–0.4%, gaining 80.65 points to 22,748.86. The Dow Jones Industrial Average (DJIA) slipped 0.1%–0.2% to 48,904.78 after recovering from deeper declines.

Smaller companies also participated in the rebound, with the Russell 2000 rising 0.9% to 2,655.94. For the year to date, the S&P 500 (SPX) is up 0.5%, the Dow 1.8%, the Nasdaq down 2.1%, and the Russell 2000 up 7%.

The conflict and energy price shock triggered sharp sector rotations. Energy and defense stocks rallied, with US defense names such as Lockheed Martin (LMT), L3Harris Technologies, Northrop Grumman, RTX, Textron, Huntington Ingalls and General Dynamics all advancing. Exxon (XOM) shares also gained.

Networking, oil producer, natural gas, software and brokerage stocks showed notable strength. Tech names including Nvidia (NVDA), Microsoft (MSFT), Meta (META) and Palantir traded higher, with several large technology firms described as having solid balance sheets also rallying.

By contrast, travel-linked stocks came under pressure. Airlines including United, Delta and American fell, with the NYSE Arca Airline Index plunging 4.1% to a two‑month low. Cruise operators Norwegian Cruise Line, Carnival (CCL) and Royal Caribbean (RCL) also dropped sharply, while some housing stocks weakened.

Oil and gas markets reacted strongly to the escalation. Brent crude futures (UKOIL) jumped about 9% to trade near $78, while West Texas Intermediate (USOIL) climbed roughly 6.3%–7.8% to settle around $71–$72 a barrel, its highest level since last summer.

The near halt to tanker traffic through the Strait of Hormuz and disruption at a major Saudi refinery underscored supply risks. Qatar shut the world’s largest LNG export plant at Ras Laffan after Iranian drone strikes, sending European natural gas benchmarks up around 39%–40% and to their highest level in a year.

Gas prices have surged nearly 50% in some European and Asian markets since Saturday, with benchmarks in Europe and Asia up about 40% by Monday’s close. Analysts noted that a sustained rise in oil could pressure consumers and potentially delay anticipated interest-rate cuts.

Treasuries sold off as higher energy prices fueled inflation concerns. The 10‑year US Treasury yield rose roughly 8.6–10 basis points to around 4.03%–4.05%, marking its biggest advance in months. Treasury yields broadly moved higher as markets trimmed bets on aggressive Federal Reserve easing.

Traders are now fully pricing in a first Fed rate cut in September, with odds of a third cut in 2026 fading. The dollar rose about 0.7%. Mortgage rates, which had recently fallen below 6% for the first time since 2022, ticked back up to around 6.12% as longer-term yields climbed.

Gold (XAUUSD) spiked, briefly topping about $5,300–$5,400 an ounce before paring gains, reflecting heightened demand for perceived havens. Market strategists said the conflict is being treated as a significant geopolitical risk but, for now, one that remains financially contained.

The market moves followed US‑Israeli strikes on Iran, including reported attacks on nuclear and military sites and the killing of Iran’s Supreme Leader Ayatollah Ali Khamenei, and Iran’s missile and drone retaliation across the Gulf region.

President Donald Trump said the conflict with Iran is expected to last four to five weeks but could go longer. US officials, including Defense Secretary Pete Hegseth, rejected the idea of an “endless” war, while Iran’s security chief ruled out negotiations.

JP Morgan (JPM) CEO Jamie Dimon told CNBC he is not currently worried about a major inflationary impact from the conflict unless it is prolonged. Other strategists noted that markets had been pricing in the possibility of conflict for weeks, which may limit further downside and allow for a quicker rebound if a path to resolution emerges.