Wall Street futures traded lower Monday morning as escalating Middle East tensions put a damper on last week’s historic market surge, with investors becoming more cautious about taking risks.
Markets had soared to new heights Friday when Iran initially opened the Strait of Hormuz, sparking massive buying across financial markets. Both the S&P 500 and Nasdaq reached record peaks for three straight trading sessions, posting their strongest weekly gains since May.
But the celebration was short-lived. Iran quickly reversed course and closed the crucial shipping lane again after the United States announced it had captured an Iranian cargo vessel attempting to breach the blockade.
On Monday, Iran’s foreign ministry declared there would be no second round of diplomatic talks with Washington, citing the blockade’s interference with negotiations and ongoing disagreements about Tehran’s nuclear activities.
Energy markets reacted sharply to the renewed tensions, with oil prices surging 5% Monday morning. Major energy companies saw gains in early trading, including Exxon Mobil up 2%, Chevron rising 1.9%, and Occidental Petroleum climbing 2.5%.
“Near-term escalation to gain an upper hand in negotiations cannot be ruled out,” said Mohit Kumar, an economist at Jefferies.
“Our view remains that we are moving towards a deal. We are at a stage where it is not in the interest of either party to carry on with the war. The MAGA base of Trump does not want to continue, and Trump wants a deal. For IRGC, the objective is survival.”
Early Monday morning futures showed widespread declines. Dow futures dropped 303 points or 0.61%, while S&P 500 futures fell 35.75 points or 0.50%. Nasdaq 100 futures decreased 140.5 points or 0.52%.
The CBOE Volatility Index, commonly called Wall Street’s “fear gauge,” jumped 2.25 points to 19.73 after declining for eight consecutive sessions, reaching a one-week peak.
Small-cap Russell 2000 futures slipped 0.9% despite the index achieving a record high Friday.
Corporate earnings season will command attention this week as analysts examine how the Iran conflict affects company performance and broader economic conditions.
Major defense contractors Lockheed Martin and RTX are set to report results this week, along with technology companies IBM and ServiceNow. Tesla will lead off earnings reports from the “Magnificent Seven” tech giants on Wednesday.
In premarket trading, Marvell Technology jumped 6% following weekend reports that Google is negotiating with the semiconductor company to create two new chips designed for more efficient artificial intelligence processing.
QXO shares fell 3.6% after the construction supply distributor announced a $17 billion acquisition deal Sunday to purchase building products company TopBuild.
