Stocks Jump, Oil Slides as Markets Bet on Limited Fallout After U.S. Strikes on Iran

Wall Street breathed a cautious sigh of relief Monday. U.S. stocks rallied and oil prices tumbled as investors hoped Iran’s response to American airstrikes would avoid triggering a full-blown disruption to global energy supplies.

The U.S. had just launched a rare direct strike on three Iranian nuclear facilities over the weekend, marking a dramatic escalation in its involvement in the Israel-Iran conflict. But markets quickly shifted their focus—not to what the U.S. had done, but to what Iran might do next.

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Stocks Rise on Hopes of De-escalation

Despite a rocky week prior, major U.S. stock indexes posted solid gains:

The S&P 500 climbed 1%
The Dow Jones Industrial Average rose 374 points (0.9%)
The Nasdaq Composite added 0.9%

Much of the optimism came from signs that Iran’s retaliation—while dramatic—may have been carefully measured. Iran announced a missile strike on Al Udeid Air Base in Qatar, which is used by the U.S. military. The response was notable for its symmetry: Iran said it launched the same number of missiles as the bombs dropped by the U.S., possibly signaling an intent not to escalate further.

Oil Prices Whiplash, Then Fall Hard

Oil markets initially panicked. After trading began Sunday night, the price of crude jumped 6%, climbing past $78 a barrel. But that rally quickly reversed. As markets processed Iran’s relatively restrained response, oil prices plunged.

By late Monday:

U.S. benchmark crude had fallen 7.2%, settling at $68.51 a barrel
That’s nearly back to where it was before the conflict escalated over a week ago

Why the Strait of Hormuz Still Looms Large

While financial markets found some footing, one big wildcard remains: the Strait of Hormuz—a narrow but vital shipping lane off Iran’s southern coast. Roughly 20% of the world’s daily oil supply flows through this waterway, and any disruption there could send shockwaves through global markets.

Iran has long hinted at using the strait as leverage, and speculation has grown in the wake of the U.S. airstrikes. But most analysts say that’s an unlikely move—for now.

“It’s a scorched earth possibility, a Sherman-burning-Atlanta move,” said Tom Kloza, chief market analyst at Turner Mason & Co. “It’s not probable.”

Iran depends on the strait, too. It exports a significant portion of its oil through those waters, especially to China, and relies heavily on the revenue.

Still, not everyone is convinced Tehran will play it safe.

“Countries aren’t always rational,” said Andy Lipow, a veteran Houston-based oil analyst. “If the Strait of Hormuz was completely shut down, oil prices would rise to $120 to $130 a barrel.”

Such a spike would likely ripple through global supply chains, drive up gas prices, and complicate efforts to tame inflation.

Fed Rate Cuts? It Depends on Oil

For now, inflation in the U.S. remains relatively tame, but a surge in oil prices could reignite price pressures and derail the Federal Reserve’s plans to cut interest rates this year.

“It would be more difficult for the Fed to lower interest rates,” Lipow noted.

However, there are signs that the Fed may still lean toward easing. Fed Governor Michelle Bowman said she would support a rate cut at the central bank’s upcoming meeting—as long as inflation stays in check.

In the bond market:

The 10-year Treasury yield slipped to 4.33% from 4.38%
The 2-year yield, which more closely tracks Fed expectations, dropped to 3.84% from 3.90%

Tesla Boosts the S&P 500 While Hims & Hers Sinks

Back on Wall Street, Tesla was the day’s standout. Shares surged 8.2% after the company launched a test fleet of self-driving cabs in Austin, Texas—a long-promised move by CEO Elon Musk that could significantly reshape the company’s future.

On the flip side, Hims & Hers Health plunged 34.6% after Novo Nordisk pulled out of a partnership involving its blockbuster Wegovy weight-loss drug. Novo Nordisk’s U.S.-listed shares also dropped 5.5%.