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US stock futures opened lower Sunday evening, as President Trump's decision to enter the US into the Israel-Iran conflict threw a fresh bout of uncertainty into a market rushing to grapple with the aftereffects.
Futures tied to the S&P 500 (ES=F) fell 0.3%, while those on the tech-heavy Nasdaq (NQ=F) dropped 0.3%. Dow Jones Industrial Average futures (YM=F) lost around 0.5%.
Oil prices jumped, with WTI crude (CL=F), the US benchmark, up over 4% at last check near $77 a barrel. Brent crude (BZ=F) futures were also up over 4%, trading above $80 per barrel. Oil had already surged over 10% since Israel launched strikes on Iran just over a week ago.
Trump late Saturday announced the US had struck Iran's three main nuclear enrichment facilities, calling the strikes a success and claiming the sites had been "totally obliterated" — a declaration that has since come under scrutiny. He threatened Iran with more attacks if the country did not quickly seek peace talks.
The focus is already turning toward Iran's next step — both militarily and diplomatically. Its foreign minister on Sunday said it reserves "all options," though he stopped short of threatening US assets or interests in the region — a possible sign of restraint.
The country could aim for leverage given its status as the fourth-largest oil producer in the OPEC+ coalition. Analysts have speculated about the impact to prices if Iran were to order the closure of the Strait of Hormuz, through which around one-fifth of global oil and gas flows. Iran's parliament was reported to back a closure, though experts are skeptical Iran will follow through on the threat.
In any case, a subsequent oil price shock could have ramifications for the US economy, potentially triggering higher inflation and leading the Federal Reserve to delay rate cuts.
The stock market remained relatively sanguine in the first week of blows between Israel and Iran, with the major indexes finishing last week largely unchanged. But early signals Sunday pointed to investors fleeing other risk assets into safer havens. Bitcoin (BTC-USD) retreated, last under the $100,000 level. Meanwhile, gold (GC=F) ticked higher.
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Wall Street reacts to US intervention in Israel-Iran war
Wall Street is closely watching escalating tensions in the Middle East after President Trump confirmed that the US launched a surprise strike on Iran’s nuclear sites late Saturday, marking the country’s official entry into the two-week-old conflict.
Markets have held mostly steady in the aftermath of the escalation, although US stock futures fell across the board when trading opened Sunday evening.
Additionally, bitcoin (BTC-USD) prices, often viewed as a barometer of risk appetite, dropped over 1.6% to trade around $100,500 a coin. WTI crude (CL=F) and Brent (BZ=F) futures jumped, trading near $76 and $79 a barrel, respectively, as uncertainty looms over the potential closure of the critical Strait of Hormuz despite ongoing threats from Iran.
The latest surge follows oil’s third consecutive week of gains on Friday.
"We wouldn’t be surprised to see this spark a risk-off reaction in US equities and will be watching the futures closely on Sunday evening and Monday morning," Lori Calvasina, head of US equity strategy research at RBC Capital Markets, wrote in a Sunday evening note to clients.
"It has been and remains our belief that the longer and broader the conflict becomes, the more challenging it could be for US equities," Calvasina added. "These escalations come at a tricky time for US equities, as the S&P 500 has looked fairly valued to us (perhaps a bit overvalued) from a fundamental perspective, with more room to run from a sentiment perspective."
The analyst said her three main concerns include: first, the risk that rising national security uncertainty could weigh on equity valuations; second, the possibility that renewed geopolitical tensions could stall the recovery in sentiment that began after the early April tariff lows; and third, the potential for a spike in oil prices, which could fuel inflation concerns.
In terms of sectors, Energy (XLE) tends to outperform when oils prices rise, while Consumer Discretionary (XLY) and Communication Services (XLC), along with Entertainment, Media, and Interactive Media, tend to lag behind the broader market, Calvasina noted.
Citi analyst Stuart Kaiser agreed that sharply higher oil prices remain "the channel for geopolitical risks to impact stock markets," identifying crude prices "well above $80 a barrel" as a critical threshold for concern.
Kaiser added that options markets are now pricing in a 10% chance that oil surges 20% over the next month, up from just 2.5% two weeks ago, reflecting mounting tail risks as the conflict deepens.
Still, the analyst pointed to resiliency in stocks amid the volatility, saying, "Markets powered through extreme oil volatility and unstable geopolitical headlines to post a risk-on week."
Will Iran shut the Strait of Hormuz? What to know about the 'worse-case scenario'
Oil prices rose Sunday evening, with investors taking stock of the US entry into the Israel-Iran conflict and how Iran might respond.
Much of the focus has turned to Iran's status as a major oil producer and whether it might seek to close the Strait of Hormuz, through which about one-fifth of the world's oil and gas flows.
Iran's parliament reportedly pushed for the strait's closure, though it left the ultimate decision up to Iran's top national security body.
That may be by design, as Yahoo Finance's Ben Werschkul details:
