Oil prices surged, US stocks erased earlier losses and gold rose Monday as financial markets digested concerns about a broadening war with Iran.
Investors are bracing for volatility in global energy markets as developments unfold in the Middle East. While markets saw sharp moves, the volatility so far has been largely as expected, and Wall Street is on watch for potential further disruptions to oil and gas prices.
The escalation in tensions between the United States and Iran sparked a bid for haven assets, with investors scooping up gold and the US dollar as places to park their cash during the turmoil. Here’s a wrap up of how markets are reacting to the developing turmoil:
Global oil prices on Monday traded at their highest level in over eight months. Brent crude, the international benchmark, surged 6.7%, to $77.74 per barrel. That marks its highest level since US strikes on Iranian nuclear facilities in June.
Meanwhile, West Texas Intermediate crude, the US benchmark, gained 6.3%, reaching $71.23 per barrel, also its highest level since June. Oil prices surged as much as 13% Sunday evening before paring gains as investors hold hope for limited long-term disruptions to markets.
Stocks were mostly lower across the globe, while US stocks were mixed. The Dow closed lower by just 73 points, or 0.15%, after sliding nearly 600 points earlier. The broader S&P 500 and tech-heavy Nasdaq turned into the green and rose 0.04% and 0.36%, respectively. Europe’s benchmark Stoxx 600 fell 1.61%. Japan’s Nikkei 225 dropped 1.35%.
Wall Street is widely expecting the conflict will be relatively short, though tumultuous. Stocks historically tend to shrug off geopolitical concerns only to rebound shortly after tensions settle. Just how high oil prices rise will be critical for determining the impact on stocks.
And while investors are grappling with resurgent geopolitical turmoil, Wall Street is also dealing with lingering weakness in tech and AI stocks as well as some concerns about the health of private credit, elevated stock valuations and potential complacency in markets.
Wall Street’s fear gauge, the VIX, was up 8% after briefly rising as much as 27% earlier.
Diesel prices surged on Monday, outpacing the gains in oil prices and hitting their highest level in over two years. Europe gasoil futures surged roughly 18%. US diesel futures surged 12%, their biggest single-day jump since 2022.
Natural gas futures surged by 38% in Europe and posted their biggest single-day gain since 2022. Europe is bracing for fallout from volatility in energy markets as conflicts rages in the Middle East. QatarEnergy, Qatar’s state-run energy company, on Monday halted production of liquefied natural gas after an Iranian attack on its facility in Ras Laffan. US natural gas futures rose more than 3%.
Gold prices rose 2% and traded at their highest level in one month. Gold briefly reclaimed $5,400 a troy ounce before paring gains Monday morning. Gold, traditional considered a haven, had been acting like a meme stock in recent weeks with volatile swings. But the metal benefited from haven demand Monday as the US-Iran conflict stirred up fresh uncertainty in markets.
The US dollar strengthened against other major currencies, benefitting from investors seeking out safe havens. The US dollar index gained 0.95%, erasing its losses for this year and trading at its highest level in five weeks. Uncertainty about oil prices and US-Iran tensions could, if prolonged, lead to the Federal Reserve holding interest rates steady for longer, which can also boost the dollar.
US government bonds fell Monday after initially gaining Sunday as investors adjusted expectations for the potential inflationary impact of higher oil prices. US Treasury yields, which trade in opposite direction to bond prices, fell Sunday before reversing course and rising Monday. The 10-year Treasury yield, which influences borrowing costs across the economy, fell as low as 3.96% Sunday — its lowest level since November — before trading at 4.04% on Monday.
Bitcoin gained more than 5% and traded around $69,120 as of the afternoon. The cryptocurrency initially edged lower before rising Monday. Bitcoin has languished this year and is down more than 40% since its record high in early October.
While broader markets were lower, industries like defense and airlines saw outsized moves. Shares of defense stocks Northrop Grumman (NOC), RTX Corporation (RTX) and Lockheed Martin (LMT), rose 6%, 4.7% and 3.37%, respectively.
Shares of airline stocks fell as investors and businesses grapple with the uncertainty plaguing the Middle East and major cities’ proximity to the conflict, such as Dubai. Shares of major US airlines American Airlines (AAL), Delta Air Lines (DAL) and United Airlines (UAL) sank 4.2%, 2.2% and 2.9%, respectively. Meanwhile, shares of Air France dropped 9.4% and Lufthansa shares fell 5.2%.
“Our take is markets overall are holding up OK, all things considered,” Krishna Guha, vice chairman at Evercore ISI, said in a Monday note.
Guha said a scenario where oil trades around $80 per barrel but the conflict is relatively short-lived would result in limited impacts on the global economy. But a scenario where oil rises above $100 would be “qualitatively different,” with much bigger shocks to the global economy.