Stocks rose and oil fell precipitously after Iran fired missiles that seemed to have been intercepted against US bases in Iraq and Qatar.
Investors are placing bets that Iran lacks the capacity or will to strike back against American soldiers.
The price of US crude fell 6% below $70 per barrel. That is a significant change from the 6% surge on Sunday night to as high as $78.50 per barrel.
In the meantime, the Dow reversed its previous afternoon decline and climbed 270 points, or 0.6%. The Nasdaq Composite was up 0.8% and the S&P 500 was up 0.7%. The market attitude indicator, CNN’s Fear and Greed Index, remained in the Neutral range.
“I believe that what you’re witnessing is a symbolic attack by Iran,” former USS Cole commanding officer Kirk Lippold told CNN. Ten missiles isn’t actually that many. Each one poses a threat and has the potential to kill or maim a large number of Americans. However, we’re hoping that the Iranians won’t respond any more at this time.
In contrast, Iran claimed that in retaliation for Israeli strikes on June 13, it fired “hundreds” of missiles at targets in Israel.
Robert Yawger, a commodity analyst at Mizuho Securities, stated that the fact that the missiles were intercepted and that no fatalities or injuries were reported increases concerns about Iran’s capabilities.
They are unable to strike us. They lack the necessary technology. It’s a criticism of their response skills every time they attempt and fail,” Yawger told CNN. “In the meantime, oil, including Iranian oil, keeps rolling unmolested.”
A challenging balancing act
These days, investing in US markets is like riding a unicycle on a bowling ball while spinning plates. In addition to fluctuating tariffs, traders must also deal with unrest in the Middle East, conflicting economic signals, and uncertainty over rates.
According to common sense, you would think that after the United States launched historic strikes on three Iranian nuclear facilities over the weekend, stocks would fall and oil prices would rise out of concern for possible retaliation and an Iranian blockade of the Strait of Hormuz, a vital shipping route that transports around 5% of the world’s oil. However, the reverse is also true. Bonds don’t talk.
Investors continue to preserve their equilibrium: What will happen next and what stance to adopt are not totally apparent. Market volatility and the possibility of a nuclear-armed Iran may be reduced if the US and Israeli strikes are mostly over and Iranian retaliation is limited. Inflation and a worldwide recession might be rekindled if the confrontation intensifies, especially if Iran shuts off oil supplies to the West. This would be in addition to a developing trade war.
“There’s a certain symbology to this as of right now,” the retired US Air Force Colonel and CNN military analyst stated on CNN Monday afternoon. “They (Iran) hope for an offramp to some extent if they can control their reaction, but that is still up in the air. All bets are off if we choose to react to this with greater vigor.
According to Rapidan Energy Group CEO Bob McNally, oil markets are currently awaiting proof of a real disruption.
When it comes to the possibility of geopolitical disruption in the oil market, McNally told CNN that traders have seen a lot of false alarms. “I believe that in the absence of a significant disruption in gulf energy, production, or flows, any additional spikes will be contained.”
Trades in safe havens, which often flourish during periods of international unrest, were slack: The troy ounce of gold increased by merely 0.4% to $3,400. Bonds gained a little, while all Treasury yields were very marginally lower.
Additionally, the dollar declined, falling 0.25% on Monday afternoon. Earlier, it had increased by almost 1%.
Following the Trump administration’s historic import taxes, investors anticipated an impending inflation-driven economic collapse, which caused America’s currency to plummet. Known as the world’s reserve currency, the dollar often rises during periods of unrest and war around the world. However, several market watchers questioned if Trump’s “America First” policy would cause it to happen again.
Since oil is traded in dollars worldwide, it is more plausible that rising oil prices were driving the dollar higher early Monday than the fear of conflict in the Middle East.
In an investor note sent Monday morning, George Vessey, head FX and macro analyst at Conerva, stated that rising Middle East tensions are providing support for the dollar through the commodities channel, even though the overall bias is still leaning toward structural dollar weakness. Iran has threatened to react by closing the Strait of Hormuz, according to state-run television, so that channel will continue to play a significant role in the days ahead.
Therefore, there is a chance that an escalation may cause the price of gas and oil to spike and the economy to slow down at the same time that higher international tariffs take effect. If inflation spikes, the Fed might be unable to cut its key interest rates, which typically boost the economy and markets.
Wall Street is mostly ignoring the Middle East situation for the time being.
