Stocks rally and oil tumbles as Wall Street hopes for a limited retaliation after US strikes on Iran

NEW YORK: US stocks rallied, and the price of oil tumbled on Monday on hopes that Iran will not disrupt the global flow of crude, which would hurt economies worldwide as well as its own, following the United States’ bunker-busting entry into its war with Israel.

The S&P 500 climbed 1%, coming off a week in which stock prices had swung on worries that the conflict might escalate. The Dow Jones Industrial Average added 374 points, or 0.9%, and the Nasdaq Composite gained 0.9%.

Oil initially jumped 6% after trading began on Sunday evening, as investors reacted to the US bombings. It quickly erased those gains and swung to a sharp loss as attention turned from US military action to how Iran might respond.

By late Monday, the price of a barrel of benchmark US crude had dropped by 7.2% to settle at $68.51, after briefly topping $78. That left it almost back to where it was before the fighting began more than a week ago, when it stood just above $68.

Losses accelerated after Iran announced a missile attack on al-Udeid Air Base in Qatar, which the US military uses. Iran said it had matched the number of bombs dropped by the United States on its nuclear sites that past weekend, signalling a desire to de-escalate the conflict.

Perhaps most importantly for financial markets, Iran’s retaliation did not appear to target oil flows. The fear throughout the Israel–Iran war has been that it could choke the world’s oil supply, driving up prices for crude, petrol and other refined products.

Iran is a major crude producer and could attempt to block the Strait of Hormuz off its coast, through which 20% of the world’s daily oil needs pass by ship. Several analysts say Iran would probably not close the waterway, since it uses the strait to export its own crude, mostly to China, and relies on the revenue.

“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.”

Neil Newman, managing director of Atris Advisory Japan, said hope remains that the Israel–Iran war could be short, on the assumption that “one big hit by the Americans will be effective and then we’ll get back to business as usual, in which case there is no need for an immediate, panicked reaction.”

Not everyone is so certain. Andy Lipow, a Houston-based oil-market analyst for 45 years, warned that countries are not always rational actors and that he would not be surprised if Tehran lashed out for political or emotional reasons. “If the Strait of Hormuz were completely shut down, oil prices would rise to $120–130 a barrel,” he said. “It would mean higher prices for goods transported by road, and it would make it more difficult for the Fed to cut interest rates.”

The US Federal Reserve has been reluctant to cut rates this year, waiting to see how much President Donald Trump’s tariffs will hurt the economy and boost inflation. Inflation has remained relatively tame, but a rise in oil and petrol prices would put upward pressure on it, which could keep the Fed on hold, as rate cuts can fan inflation even higher while giving the economy a boost.

In the bond market, Treasury yields eased after Fed Governor Michelle Bowman said she would support a rate cut at the Fed’s next meeting in a month’s time, provided “inflation pressures remain contained.” The yield on the 10-year Treasury fell to 4.33% from 4.38% late on Friday, while the two-year yield, which more closely tracks Fed expectations, dropped to 3.84% from 3.90%.

On Wall Street, Elon Musk’s Tesla was the biggest contributor to the S&P 500’s gains after jumping 8.2%. The electric-vehicle maker began a test run of a small fleet of self-driving taxis in Austin, Texas, on Sunday—a service Musk has long promised and one integral to Tesla’s share price.

Hims & Hers Health plunged 34.6% after Novo Nordisk said it would no longer work with the company to sell its popular Wegovy obesity drug. Novo Nordisk’s US-listed shares fell 5.5%.

All told, the S&P 500 rose by 57.33 points to 6,025.17; the Dow Jones Industrial Average added 374.96 to 42,581.78; and the Nasdaq Composite gained 183.56 to 19,630.97.

Abroad, stock markets in Europe fell modestly after finishing mixed in Asia. France’s CAC 40 sank 0.7%, while Hong Kong’s Hang Seng rose 0.7%.

By RSS/AP