US equity futures declined, and oil prices jumped on Monday as renewed hostilities in the Middle East, specifically the US restarting a blockade on Iran in the Strait of Hormuz, rattled markets. S&P 500 contracts dropped 0.2% in early trading, following a 0.4% gain on Friday. Brent crude climbed 3% at the open, eventually rising 7.8% to $81.92 a barrel by 2:05 p.m. Eastern time. The dollar also strengthened against most major currencies. This surge in oil prices, described as fanning fresh inflation concerns, is expected to pressure central banks like the Federal Reserve to consider further interest rate increases.
Adding to the market's unease, President Donald Trump announced the reinstatement of the Iranian blockade in the Strait of Hormuz, demanding a 20% payment on all cargo shipped through the strait to cover protection costs. This move directly clashes with Iran's assertion of control over the critical waterway and its right to charge fees. While Brent crude's price surged toward $80 due to these actions, it remains significantly below its wartime peak of nearly $120 per barrel. Analysts, like Fawad Razaqzada from Forex.com, expressed concern about the situation spiraling, though some, like Fabien Yip from IG, believe a repeat of the earlier, higher price spike is unlikely due to slow demand recovery and increased oil supply from other sources.
The broader market decline on Monday saw the S&P 500 fall 0.7%, the Dow Jones Industrial Average drop 121 points (0.2%), and the Nasdaq composite decrease by 1.4%. The tech sector, especially chipmakers, experienced significant losses. Nvidia, the largest stock by value, fell 3.2%, being the heaviest weight on the S&P 500. Micron Technology sank 4.9%, despite a stellar year-to-date rise of 243.1%. South Korea's Kospi index plunged 8.9%, with SK Hynix's stock experiencing its worst drop since 1997 at 15.4%. Taiwan Semiconductor Manufacturing Co. (TSMC) saw its Taiwan-traded shares rise 1% due to strong revenue growth, but its US-traded shares fell 2.3%.
In the bond market, Treasury yields rose in response to the climbing oil prices, reflecting worries about inflation and potential rate hikes. The yield on the 10-year Treasury climbed to 4.62% from 4.56% on Friday, notably higher than the 3.97% before the war with Iran began. This week, Wall Street's attention will also be on the earnings reports from major banks, including Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Wells Fargo, which are all scheduled for Tuesday. Analysts project an overall growth of 23.6% for S&P 500 companies this quarter, according to FactSet.
