Iran launched missiles at U.S. air bases in Qatar and Iraq, but the attacks appeared to be intercepted. Oil prices fell sharply and stocks rallied as traders bet that Iran does not have the willingness or capability to retaliate further against U.S. forces. This raised hopes that the missile strikes will be the extent of the Iranian response.
A sustained spike in oil prices would damage the U.S. economy by raising costs for consumers and businesses. Falling oil prices have been a relief for U.S. stock market investors. U.S. crude oil tumbled 7.2% to $68.51 a barrel, the largest one-day drop since early April and one of the worst days in the past three years.
This marks a dramatic turnaround from the Sunday evening spike of 6% to as high as $78.50 a barrel. The Dow Jones Industrial Average rose 374 points, or 0.89%. The S&P 500 gained 0.96%, and the Nasdaq Composite was 0.94% higher.
The Fear & Greed Index, which measures market sentiment, ticked into the ‘Greed’ territory after hovering in ‘Neutral.’
Kirk Lippold, the former commanding officer on the USS Cole, said, “I think what you’re seeing in many ways is a symbolic attack by Iran. Ten missiles are not that much. Every one is dangerous, every one could kill or maim many Americans.
But hopefully at this point, we’re not going to see further responses by the Iranians.”
Iran gave Qatar advance notice before launching missiles towards a U.S. military base there, according to a source familiar with the matter.
Oil prices dip amid attack fears
Iranian officials aimed to minimize casualties and preserve an off-ramp, the source said.
The Trump administration was prepared but did not want more military engagement in the region, a senior White House official said. Investing in U.S. markets lately has been a complex endeavor with rapidly changing tariffs, mixed economic signals, uncertainty over rates, and escalating conflict in the Middle East. Conventional wisdom might suggest that U.S. airstrikes would send stocks lower and oil prices higher, due to fears of retaliation and a potential Iranian blockade of critical shipping lanes.
However, the opposite has occurred. Cedric Leighton, military analyst and retired U.S. Air Force Colonel, said, “If the U.S. and Israeli strikes are largely over, and Iranian retaliation is muted, this could be a net positive for markets. If we decide to respond more forcefully, all bets are off at that point.”
Oil markets are waiting for evidence of an actual disruption, said Bob McNally, president of Rapidan Energy Group.
“Traders have seen a lot of false alarms when it comes to geopolitical disruption risk in the oil market,” McNally stated. Energy Secretary Chris Wright added that while he expected oil prices to fall, the extent of the downturn was more significant than anticipated. Safe-haven trades, typically popular during global strife, were muted.
Gold rose just 0.2% to $3,390 a troy ounce, and Treasury yields fell slightly as bond prices rose. The dollar declined by 0.3% Monday afternoon, after initially being up nearly 1% earlier in the day. Some market observers questioned if geopolitical tensions would bolster the dollar under Trump’s “America First” policies.
George Vessey, lead FX and macro strategist at Convera, said, “While the broader bias leans towards structural dollar weakness, escalating Middle East tensions are injecting support for the greenback via the commodity channel.”
For now, Wall Street appears to be looking past the Middle East conflict, maintaining its investment strategies and market positions.
