U.S. equities reversed course on Monday as concerns over escalating tensions grew following the arrival of additional American troops in the Middle East. The S&P 500 fell 0.4%, erasing an intraday gain of as much as 0.9%. The index closed at its lowest level since August of last year and is now less than 1% away from entering a correction. The Nasdaq 100 declined 0.8%, having already entered a correction last Friday.
The White House has threatened to escalate strikes against Iran, including targeting key civilian energy infrastructure. Although U.S. President Donald Trump stated that negotiations are progressing, there are few signs of the conflict easing. Investors are also digesting remarks from Federal Reserve Chair Jerome Powell, who reaffirmed the central bank's commitment to achieving its 2% inflation target while acknowledging its limited ability to counter supply-side shocks, such as surging oil prices.
U.S. Treasury yields fell as investors grew concerned about the economic outlook and revised their expectations for Federal Reserve interest rate hikes. Despite the downturn, strategists at Morgan Stanley believe increasing evidence suggests the stock market decline is nearing its end. Traders at Goldman Sachs noted that heavy shorting by hedge funds and selling by systematic investors have increased the likelihood of a significant market rebound if tensions with Iran de-escalate.
The S&P 500 is on track for its worst monthly performance since 2022, with the sell-off largely driven by fears that Middle East conflict could push oil prices higher, potentially stifling economic growth and reigniting inflation. At the close, the S&P 500 was down 0.4% at 4,216.72. The Dow Jones Industrial Average rose 0.1% to 33,216.14, while the Nasdaq Composite fell 0.7% to 12,794.64. The Nasdaq 100 dropped 0.8% to 13,953.38, and the Russell 2000 declined 1.5% to 1,414.01.
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