Wall Street saw a wide intraday swing on Monday as investors recalibrated how long the war with Iran might disrupt Middle East oil production and shipping. In early trading, U.S. stocks slid, but they later moved into positive territory as worries eased and oil prices dropped from highs near $120 per barrel to levels below $90.
The shift came alongside hour-to-hour market reactions to uncertainty about how high oil prices could climb and for how long they would stay elevated, a concern that has been tied to disruptions to the energy industry in the Middle East. Oil surged as the Iran war raised questions about supply and shipping, with investors focused in particular on the Strait of Hormuz, a narrow waterway off Iran’s coast that a fifth of the world’s oil passes through on a typical day.
As the session unfolded, the S&P 500 fell as much as 1.5% in the morning before turning higher to end up with a gain of 0.8%. The Dow Jones Industrial Average pared a drop of nearly 900 points to finish up 239 points, or 0.5%, while the Nasdaq composite rose 1.4%.
Oil prices whipsawed in parallel with the stock swings. Brent crude briefly touched $119.50, then pulled back and, by the afternoon, settled at $98.96 before continuing to fall below $90. Benchmark U.S. crude touched $119.48 during the morning, later pulled back to settle at $94.77, and then sank toward $85.
Markets’ later turn followed comments attributed to President Donald Trump in an interview with CBS News. The AP report said the comments calmed worries earlier in the morning by suggesting the war might not last long and that Iran had “nothing left” militarily, after which oil prices pared gains. The AP report also said Trump added that, regarding the Strait of Hormuz, he was “thinking about taking it over,” according to CBS.
Investors have said the risk from high oil prices is not limited to energy producers and traders. The concern is that if prices stay very high for a prolonged period, household budgets already strained by inflation could break under the pressure, while companies could face higher fuel bills and higher costs to stock shelves and move inventory through supply chains. Some analysts have also pointed to the possibility of “stagflation,” a scenario in which growth slows while inflation remains high.
Even after Monday’s rebound, the AP said investors still expect volatility in coming days because the uncertainty around the war has already produced large swings, including during the prior week. Still, some professional investors have said sharp drops in oil could eventually translate into better conditions for stocks, as new supply comes online.
The AP report also placed Monday’s market moves in a broader context: U.S. stock indexes have historically recovered relatively quickly from military conflicts, so long as oil prices do not stay too high for too long. It added that the S&P 500 remains within 3% of its record set in January, even with the recent swings.
Abroad, markets fell sharply earlier in the day before the CBS comments were published. South Korea’s Kospi sank 6%, Japan’s Nikkei 225 fell 5.2%, and France’s CAC 40 dropped 1%, according to the AP report. In the bond market, the yield on the 10-year Treasury fell to 4.10% from 4.15% late Friday, after briefly rising above 4.20% early Monday.
The AP report said worries about inflation and oil prices pushed Treasury yields up, while concerns about a potentially slowing economy helped pull them down. It cited a weak U.S. job market report on Friday that showed employers cut more jobs than they added in the prior month, and said yields slid late in the day when oil eased.
In corporate commentary, the AP report quoted Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute, saying the firm continues to believe that the current acute shortage of oil will reverse in the coming months as new supply comes online and oil should drop significantly. The AP report also said the market remained sensitive to forecasts about whether disruptions around the Strait of Hormuz would persist, including the risk that if the strait remains closed for only a few weeks, oil could push to $150 per barrel, according to Macquarie Research.