The S&P 500 ended Monday just above the the flatline, rebounding from sharp declines earlier in the day, as investors bought the dip following U.S. and Israel strikes on Iran over the weekend.
A few major factors fueled the comeback:
- U.S. oil prices came off their highest levels of the session, easing concerns about the war's impact on the U.S. economy.
- Investors bought heavily the tech leaders of the bull market like Nvidia and Microsoft, cash-rich companies that could be resilient to any war impact.
- There's history of equities largely shaking off past geopolitical conflicts.
The S&P 500 inched up 0.04% and closed at 6,881.62. The broad market index cut its losses after falling 1.2% at its lows. The Nasdaq Composite was higher by 0.36%, ending the session at 22,748.86. At one point, the tech-heavy index was down 1.6%. The Dow Jones Industrial Average fell 73.14 points, or 0.15%, settling at 48,904.78. At its lows, the Dow was down nearly 600 points.
"Futures markets overreacted to the Iranian conflict, creating an opportunity to buy the S&P 500 as it neared its 2026 lows," said Jeff Kilburg, CEO of KKM Financial, who posted Sunday night that the market would turn green before the close Monday. "We remain in a bull market despite escalating geopolitical tensions."
Nvidia shares gained nearly 3%, and Microsoft was up by more than 1%. Just four of the 11 sectors in the S&P 500 were positive on the day: energy, industrials, tech and real estate.
The joint U.S.-Israeli strikes killed Supreme Leader Ayatollah Ali Khamenei, marking a watershed moment for the Islamic Republic and one of its most consequential episodes since 1979.
President Donald Trump said Monday that the military operation against Iran "was our last, best chance to strike" to "eliminate the intolerable threats posed by this sick and sinister regime." He also said that he believes the U.S. will "easily prevail" in the country and anticipates the conflict will last four to five weeks, though he added it could go on "far longer than that."
Iranian officials vowed a forceful retaliation against the strikes, raising fears the conflict could escalate further across the region as blasts were heard in places such as Dubai and Abu Dhabi.
U.S. crude prices gained as investors worried the confrontation could spiral into a broader war that disrupts supplies. Iran is the fourth-largest oil producer in OPEC. Crude was up 12% at its high.
Though oil prices came off their highs of the day, which helped sentiment, Brent crude futures were still up nearly 8% after an Iranian Revolutionary Guard commander said the Strait of Hormuz — the world's most important chokepoint for crude flows — was closed.
A sustained interruption there could reverberate through global energy markets and reignite inflation pressures.
"A long bottleneck there would present meaningful upside to oil prices as they sit right now," said Ross Mayfield, Baird investment strategist. "A two-week shock to oil prices is not going to have a major impact on the U.S. consumer or how the Fed is thinking about interest rates, but a multi-month step-up in level would have an impact."
On top of tech, a rise in defense stocks helped the major averages recoup a chunk of their losses. Northrop Grumman advanced 6%, while Lockheed Martin climbed more than 3%. Energy shares including Exxon Mobil and Chevron saw gains as well.
Traders Monday may also be getting ahead of a well-known historical pattern where stocks dip initially but typically trade higher in the weeks following geopolitical conflicts. Data from Wells Fargo shows the S&P 500 typically turns positive within two weeks of a major conflict and is higher by 1%, on average, three months out.