US stock and bond markets faced downward pressure on Monday as oil prices surged following heightened Middle East tensions over the weekend, casting doubt on ceasefire negotiations. The MSCI global equity index declined approximately 0.3%, while European stocks fell 1%, despite Asian markets advancing earlier in the session.
Futures for the S&P 500 dropped 0.4%, Nasdaq futures declined 0.4%, and Dow Jones futures fell 0.5%. This pullback comes after US benchmarks recently set consecutive record highs. Technology stocks, which have driven much of the market's rebound since March 30 when US indices hit their 2026 lows, paused their ascent. Meta Platforms Inc., NVDA 3xLongSG261006, and Amazon each fell more than 1% in premarket trading.
Brent crude oil jumped 4.6%, approaching $95 per barrel, after the US Navy seized an Iranian vessel in the Strait of Hormuz for the first time. This development occurred shortly after Iran had resumed blocking shipping through the critical waterway, despite having announced its reopening less than 24 hours earlier.
Data from Kpler indicated that more than 20 vessels carrying oil products, metals, natural gas, and fertilizers transited the strait on Saturday, marking the busiest day for the chokepoint since March 1.
Monday's risk-off sentiment is tempering the recent market rally that had erased all war-related losses in US equities. Conflicting signals from US and Iranian officials regarding potential Tuesday talks, ahead of an expiring ceasefire, have created uncertainty.
"Markets are reacting sharply to any news that might indicate a potential outcome, leading to significant volatility. However, the situation remains highly uncertain and fluid," stated Sandra Horsfield, an economist at Investec.
She noted that despite the pullback, not all gains from Friday—when Iran initially suggested reopening the strait—have been reversed, indicating some residual improvement in market sentiment.
Uncertainty surrounds US-Iran negotiations. Traders believe volatility could persist during talks, though pressure for a resolution remains high. Iran's official news agency quoted President Masoud Pezeshkian emphasizing that war benefits neither side and advocating for diplomatic de-escalation.
"While weekend developments have dampened optimism, they haven't shattered it completely. Markets still anticipate a near-term solution that would restore energy supplies," said Stephan Kemper, Chief Investment Strategist at BNP Paribas Wealth Management.
Prospects for further talks appeared uncertain after Iran's official media reported on Sunday that Tehran rejected new negotiations with the US. This followed a statement by the US President hours earlier about sending an envoy to Pakistan for talks, warning of new strikes if Iran refused US terms.
"Whether this stalemate is a temporary setback or a deeper obstacle remains to be seen; increased volatility seems the most likely outcome," commented Derren Nathan, Head of Equity Research at Hargreaves Lansdown.
Elsewhere, UK Prime Minister Keir Starmer was expected to address Parliament on Monday amid calls for his resignation related to the appointment of Peter Mandelson as ambassador to the US without proper vetting.
Traders are also watching Kevin Warsh's Senate confirmation hearing for Federal Reserve Chair this week. The two-year US Treasury yield fell back below the Fed's 3.75% policy ceiling, after trading above it for an extended period due to war-driven oil price spikes.
Should Warsh signal openness to monetary easing this year and a willingness to overlook energy price shocks, short-term Treasuries might find further support. Money markets currently price about a 50% chance of a rate cut by December.
European bond yields rose significantly, with Germany's 10-year yield up 3.6 basis points to 3.0015%, while US yield increases were more modest. The dollar edged higher.
Gold fell below $4,800, touching a low of $4,737 earlier in the session, its weakest since April 13. "The oil price spike post the Strait of Hormuz confusion means inflation risks remain palpable, reducing gold's appeal as a safe haven. The US dollar has been preferred over gold throughout this conflict," said Han Tan, Chief Market Analyst at Bybit.
He added, "Unless we see meaningful and sustained de-escalation, spot gold will likely continue trading sideways below $5,000."
Earnings season has started strongly. Data compiled by Bloomberg Intelligence shows S&P 500 companies that have reported so far have beaten profit expectations by 11% on average. Key reports this week include Tesla and Boeing on Wednesday, and Intel on Thursday. The economic impact of the seven-week Middle East conflict will also become clearer with PMI data due Thursday.
"Earnings provide important support, but geopolitics remain the dominant driver. A deal would refocus attention back to earnings. Market strength may still be concentrated, as much growth comes from the 'Magnificent Seven'," noted Patrik Lang, Chief Investment Strategist at Global Gate Asset Management.
UK inflation, US retail sales, and European PMI data are due this week, but market focus remains on Gulf shipping dynamics.
"The key gauge of geopolitical risk is now distilled to one data point: vessel traffic through the Strait of Hormuz. Talks matter, but markets are more focused on inflation pressures from oil and other supply shortages," said Bob Savage, Head of Market Macro Strategy at BNY Mellon.
Global M&A activity is recovering, supported by large deals. Data from LSEG showed announced global deal value fell to about $39 billion in the second week of March amid market turmoil following US-Israel strikes on Iran, the lowest weekly level since last April. However, driven by mega-deals like Pershing Square's proposed $68 billion acquisition of Universal Music Group and McCormick's planned $45 billion merger with Unilever's food business, the four-week average global M&A value rose to about $117 billion from March 15, exceeding the ~$93 billion average in January and February.
Despite ongoing Middle East tensions, Wall Street's bullish sentiment on global equities is strengthening. After initial volatility, institutional investors appear to be discounting war-related noise, no longer viewing it as the primary market driver as in early March, and largely ignoring geopolitical headlines.
Several Wall Street firms attribute market resilience to ongoing upward revisions in corporate earnings expectations, particularly for tech companies tied to booming AI infrastructure demand, which remain unaffected by the conflict. Another significant trend supporting the global equity rebound is growing belief in a "TACO" strategy—the expectation that the US President will ultimately back down as deadlines approach, triggering a market rally.
Against the Middle East backdrop, a key lesson for investors who navigated the recent market rebound is to avoid interpreting every geopolitical headline as a trend shift, and instead discern whether markets are pricing in further escalation or betting on eventual negotiations and a "TACO" outcome.
Goldman Sachs strategists recently cautioned that the S&P 500's record highs appear "top-heavy." In a report, a team led by Ben Snider noted that analyst earnings upgrades are concentrated in few sectors. While consensus EPS estimates for 2025 and 2026 have risen 4% since January, nearly all the increase comes from energy and IT sectors, boosted by Middle East-driven oil prices and AI investment optimism.
Since the Iran conflict began, Exxon Mobil and Micron Technology alone contributed over 60% of the upward revisions to the S&P 500's 2026 EPS consensus. Half the index's constituents saw no change to their 2026 profit forecasts in recent months. "Recent weeks' EPS upgrades for the S&P 500 have been overwhelmingly driven by just a handful of stocks," Snider said.
Focus Stocks: Iran's foreign ministry denied reports of a second round of talks. US oil companies gained premarket: Petrobras up nearly 3%, Exxon Mobil up nearly 2%, Chevron up 1.8%, BP up 1.4%, TotalEnergies up 1%. American Airlines fell nearly 3% premarket after clarifying it has no plans to merge with United Airlines. Marvell Technology rose 5.6% premarket on reports it is in talks with Google to develop two new chips. AST SpaceMobile plunged over 13% premarket after its BlueBird 7 satellite launch failed. Deutsche Bank fell over 2% premarket following a downgrade and price target cut by Barclays. iQiyi gained over 2% premarket after CEO Gong Yu announced a strategic shift towards decentralized social media. United Microelectronics continued its rise, up over 4% premarket, after signaling wafer price adjustments in the second half of the year.
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