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US stock futures traded lower on Monday, but recouped some of the losses that came after President Trump ordered a US blockade of the Strait of Hormuz following the collapse of US-Iran negotiations.
Dow Jones Industrial Average futures (YM=F) were down 0.5%, or around 250 points, after sinking as much as 580 points. Contracts on the S&P 500 (ES=F) and Nasdaq 100 (NQ=F) dropped roughly 0.6% and 0.7%, respectively, as a surge in oil prices revived concerns about inflationary pressure and potential drag on global growth.
Trump’s move to block all maritime traffic through the Strait of Hormuz looks set to escalate already high-running Middle East tensions. That has piled on even more risk for markets whose hopes for a cessation in hostilities were dented by the breakdown in negotiations in Islamabad.
“Effective immediately, the United States Navy, the Finest in the World, will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz,” Trump wrote on Truth Social. The halt is scheduled to start at 10 a.m. ET on Monday, though Iran has said it “won’t allow” it to happen.
“This is very dangerous because, now, we are transforming a regional fight into potentially a global fight,” Jorge Montepeque, managing director of Onyx Capital, told Bloomberg TV.
Oil prices jumped on the threat to global energy flows, with global benchmark Brent crude (BZ=F) rising 9% to near $104 a barrel before paring gains to trade at almost $102. US counterpart West Texas Intermediate futures (CL=F) were up over 7% to above $103 per barrel.
But the early Monday easing in the stock pullback and oil rally suggests markets have regained some of the optimism for a diplomatic resolution to the Iran war, some analysts said. The fragile temporary ceasefire agreed last week drove a strong rally, and appears to be holding as investors assess whether Trump will again fail to follow through on threats.
Attention now turns to the start of first-quarter earnings season. US banks are set to begin reporting results, with Goldman Sachs (GS) kicking things off Monday, followed by Bank of America (BAC), Wells Fargo (WFC), Citigroup (C), JPMorgan Chase (JPM), and Morgan Stanley (MS) as the week progresses.
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