U.S. stocks recovered part of their earlier losses on Monday, but investor sentiment remained cautious as escalating tensions in the Middle East drove oil prices higher and raised concerns about the potential economic impact of rising energy costs.
At 12:00 ET (16:00 GMT), the S&P 500 index declined 0.5% to 6,708.07, after earlier falling as much as 1.5% during the session. The Dow Jones Industrial Average dropped 0.9% to 47,069.36, recovering somewhat from an earlier loss of nearly 1.9%. Meanwhile, the NASDAQ Composite slipped 0.1% to 22,365.74, trimming a previous decline of roughly 1.5%.
Wall Street’s main indexes had already ended the previous week in negative territory, with all three major benchmarks falling more than 1% as geopolitical tensions intensified and concerns about the global economic outlook grew.
Oil Prices Retreat After Approaching $120 per Barrel
Crude oil prices extended the sharp rally seen last week after the conflict involving the United States, Israel, and Iran escalated over the weekend. NATO spokesperson Allison Hart confirmed on Monday that the alliance intercepted another missile headed toward Turkey, highlighting the rising regional tensions.
In Iran, Mojtaba Khamenei was named the country’s new supreme leader following the assassination of Ali Khamenei. Mojtaba is widely viewed as a hardliner and is expected to maintain Iran’s confrontational stance toward Western nations.
Amid fears of supply disruptions and risks to shipping through the Strait of Hormuz, Brent crude and U.S. West Texas Intermediate (WTI) briefly surged close to $120 per barrel earlier in the session. Prices later eased somewhat, with Brent crude still up around 8% at $100.14 per barrel, while WTI gained about 5.4% to $95.84 per barrel.
Carol Schleif, chief market strategist at BMO Private Wealth, said investors had hoped tensions would ease over the weekend. Instead, the situation intensified, adding to last week’s stock market losses and the sharp rise in oil prices.
According to Schleif, triple-digit oil prices quickly translate into higher gasoline costs, which can weigh on both investor confidence and consumer spending, contributing to the current risk-off sentiment in financial markets.
Rising Energy Costs Fuel Inflation Concerns
The sharp increase in crude prices has raised fears that a new energy shock could push inflation higher and reduce consumer spending in the United States.
A prolonged rally in oil could also complicate the outlook for the Federal Reserve, potentially forcing policymakers to keep interest rates higher for longer if inflation pressures remain elevated even as economic growth slows.
However, Schleif noted that the broader economic environment is currently stronger than during March 2022, when oil prices last exceeded $100 following Russia’s invasion of Ukraine. She emphasized that the duration of elevated oil prices will likely determine how severe the economic impact becomes.
IMF Warns of Global Inflation Risks
Meanwhile, International Monetary Fund Managing Director Kristalina Georgieva warned that sustained increases in oil prices could have significant global consequences.
Speaking at an event in Japan, Georgieva said that a prolonged 10% rise in crude oil prices could increase global headline inflation by about 0.4 percentage points, urging policymakers to prepare for unexpected economic shocks.
Key U.S. Economic Data Ahead
Monday’s U.S. economic calendar was relatively quiet, but investors are looking ahead to several key reports later this week.
The U.S. consumer price index (CPI) will be released on Wednesday, providing an important update on inflation trends. On Friday, markets will focus on the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, along with data on job openings.
These releases follow last week’s weaker-than-expected U.S. nonfarm payrolls report, which renewed concerns that the American labor market may be losing momentum.
Hims & Hers Health Shares Surge on Novo Nordisk Deal
In corporate news, several major companies are scheduled to report earnings this week, including Hewlett Packard Enterprise, Kohl’s, Oracle, Dollar General, and Dick’s Sporting Goods.
Meanwhile, shares of Hims & Hers Health surged sharply after reports that Novo Nordisk plans to sell its weight-loss drugs through the company’s telehealth platform. The partnership represents an unexpected reconciliation between the two firms following a recent legal dispute.
Hims & Hers stock, which had fallen about 51% since the start of the year, jumped around 40% on Monday following the announcement.
