Wall Street's main indexes opened lower on Monday following a record rally last week, as escalating U.S.-Iran tensions threatened the fragile ceasefire and dented investor sentiment. The S&P 500 slipped 0.2% after the United States attacked and seized an Iranian-flagged cargo vessel over the weekend, with President Trump describing the incident on Truth Social: "The Iranian crew refused to listen, so our Navy ship stopped them right in their tracks by blowing a hole in the engineroom." The Dow Jones Industrial Average was down 45 points, 0.1%, as of 9:35 a.m. Eastern time, while the Nasdaq composite was 0.2% lower. However, the Dow Jones Industrial Average surged 1.8% to 49,447.43 and the Nasdaq composite climbed 1.5% to 24,468.48 in later trading, with the U.S. stock market jumping more than 12% since hitting a bottom in late March on hopes the United States and Iran can avoid a worst-case scenario for the global economy. The previous week's strong performance had provided some momentum to major indexes, but the geopolitical developments have now overshadowed that positive momentum.
The market decline comes as Iran on Saturday closed the Strait of Hormuz once again and opened fire on at least two commercial vessels. Iran's Parliament Speaker Mohammad Bagher Ghalibaf said that the ongoing U.S. naval blockade is the reason behind the restricted transit through the Hormuz. Meanwhile, the U.S. Central Command said it fired on, boarded, and seized an Iranian-flagged vessel on Sunday while it was heading toward the Iranian port of Bandar Abbas. U.S. President Donald Trump pledged a quick second round of U.S.-Iran talks in Islamabad this week, while once again threatening to target all power plants and bridges in the country if negotiations collapse. However, Iran's semi-official Tasnim news agency reported that the Islamic Republic would refuse to attend any talks while the U.S. Navy blockade remains in effect. Iran's joint military command said Tehran would respond soon and called the U.S. seizure an act of piracy.
Oil prices climbed 5.3% to $87.88 per barrel for U.S. benchmark crude, while Brent crude, the international standard, was up 5.3% at $95.62 per barrel. The price surge came after Iran's foreign minister, Abbas Araghchi, posted on X that passage for all commercial vessels through the strait "is declared completely open" as a ceasefire appears to be holding in Lebanon. After Araghchi's announcement, Trump said on his social media network that the U.S. Navy's blockade of Iranian ports remained "in full force" pending a deal on the war, though he also suggested that "should go very quickly in that most of the points are already negotiated." Travel stocks led the declines on Monday, with technology, bank, and automobile stocks also slumping as investors reacted to the escalating tensions. At the same time, energy stocks climbed as oil prices jumped, benefiting from the surge in crude prices. The reaction in stocks has been more muted compared to oil markets, with a mixed trading session across Asia, while pre-market indicators for both Europe and the U.S. main markets moved lower.
The oil price surge has significantly impacted U.S. consumers, with a gallon of regular gas costing an average of nearly $4.05 on Sunday, according to motor club federation AAA. That's about 8 cents lower than a week ago, but far higher than $2.98 before the war. Industry analysts have repeatedly warned that the longer the Strait of Hormuz remains closed, the worse prices could get. Even if a lasting deal to reopen the Strait emerges, analysts say it could take months for oil shipments to return to normal levels and for fuel prices to go down. Backed-up tanker traffic, shipowners concerned about another sudden escalation, and energy infrastructure damaged during the war are factors that could impede production and shipment volumes from returning to pre-war levels.
The next big deadline is looming on Wednesday night at 8 p.m. Eastern time, when a fragile, two-week ceasefire between the U.S. and Iran is scheduled to expire. This approaching deadline adds urgency to the current negotiations and could significantly impact market sentiment if the agreement fails to be extended. Investors this week will closely watch preliminary Eurozone PMI data for April, which will offer new insight into how businesses view the economic outlook for the coming months amid elevated energy prices. The PMI data will offer a useful measure of how activity is being affected by the crisis in the Middle East, according to Oxford Economics' chief European economist Angel Talavera. Since the war began, market sentiment has swung between optimism and gloom over when the fighting will end and what costs the world economy will endure.
