Markets Ride Geopolitical Swings as Israel-Iran Tensions Dominate Headlines

U.S. stocks delivered a volatile session Monday as traders reacted to fast-moving developments in the ongoing Israel-Iran conflict, which escalated over the weekend when the U.S. conducted strikes that destroyed three nuclear sites in Iran.

While the U.S.-led attacks rattled sentiment initially, they did not spark a full-blown flight to safety. In fact, stocks opened higher and oil prices moved lower as markets bet the situation would remain contained without major disruptions to Middle Eastern oil supplies.

Early optimism, however, ran into resistance. The S&P 500 briefly touched the key 6,000 mark but lost momentum after reports surfaced that Iran was preparing a missile strike on a U.S. base in Qatar. Although the report proved accurate, follow-up headlines reassured investors: Iran had reportedly notified officials in advance to minimize casualties, Qatar’s defense system intercepted the missiles, and no injuries were reported. This relief triggered a sharp rebound, pushing the major indices back to session highs and lifting the S&P 500 above 6,000 once again.

Oil markets mirrored this sentiment shift. WTI crude futures tumbled 7.0% to settle at $68.63 per barrel, weighing on the energy sector, which ended the day down 2.5%—the only S&P 500 sector to close in the red. The other ten sectors posted gains ranging from a modest 0.1% in health care to a solid 1.8% for consumer discretionary, with eight sectors up at least 1%.

Consumer discretionary names led the way, driven by a standout session for Tesla, which soared 8.2% after officially launching its much-anticipated robotaxi service in Austin, Texas. Tesla’s rally also helped lift the Vanguard Mega Cap Growth Index Fund, which added 1.3% for the day.

Other top performers included rate-sensitive sectors such as real estate (+1.5%), utilities (+1.3%), and financials (+1.2%), which benefited from a notable drop in Treasury yields. Safe-haven flows and renewed optimism for an interest rate cut helped push the 2-year yield down eight basis points to 3.83%, while the 10-year yield slipped six basis points to 4.32%.

Dovish comments from Fed officials added fuel to the rate-cut narrative. Fed Governor Bowman said she could support a cut at the July FOMC meeting if inflation stays in check, echoing remarks from Fed Governor Waller late last week, who also hinted at the possibility of easing this summer. The CME FedWatch Tool now shows a 22.7% chance of a 25-basis-point cut at the July meeting, up from 14.5% last Friday.

All eyes now turn to Fed Chair Powell, who will deliver his semiannual monetary policy report to the House Financial Services Committee on Tuesday. Markets will be listening closely for any signs the central bank is shifting closer to rate cuts, despite Powell’s recent caution in ruling out near-term moves.

Our U.S. portfolio, FTInvest 11, began the week on a weaker footing, weighed down primarily by underperformance in its energy holdings. The index declined 1.01% for the day, slipping below the 780 mark and finishing at 773.67.

The pullback reflects broader pressure across energy-related names, which struggled in the face of falling oil prices and shifting geopolitical sentiment. We will be watching to see whether the portfolio can regain traction as the week unfolds.