US stocks fell sharply on Monday, starting the week on a weak note as investors reacted to the collapse of US-Iran weekend talks and a surge in oil prices following fresh military developments in the Strait of Hormuz.
The Dow Jones Industrial Average dropped 368 points, while the S&P 500 fell around 0.32%, and the Nasdaq 100 declined roughly 0.28%.
The downturn follows two consecutive weeks of gains for major indexes, driven by optimism that ceasefire talks would lead to a resolution.
However, the lack of progress has renewed concerns about prolonged conflict and its economic fallout.
Iran talks collapse, blockade escalates tensions
Investor sentiment deteriorated after talks in Islamabad failed to produce a deal, raising the risk of a prolonged conflict in the Middle East. The situation escalated further after Donald Trump announced a naval blockade targeting Iranian ports.
“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 Blockade will begin shortly. Other Countries will be involved with this Blockade. Iran will not be allowed to profit off this Illegal Act of EXTORTION.”
The US military confirmed it would begin blocking maritime traffic into and out of Iranian ports, while allowing transit through the Strait of Hormuz for vessels heading to non-Iranian destinations.
Vice President JD Vance left negotiations without an agreement, citing Iran’s refusal to halt its nuclear ambitions. Iranian demands, including control of the Strait of Hormuz, war reparations, and the release of frozen assets, remain key sticking points.
The CBOE Volatility Index rose above 21, reflecting increased market anxiety as investors braced for further developments.
Oil surge reignites inflation concerns
Oil prices jumped sharply in response to the escalating tensions, with West Texas Intermediate crude rising more than 7% to above $103 per barrel and Brent crude climbing past $101.
The surge in crude prices has renewed fears of inflationary pressure, particularly after recent data showed a sharp rise in US consumer prices driven by energy costs. The ongoing disruption in the Strait of Hormuz, a critical route for global oil shipments, continues to constrain supply and amplify market volatility.
Rising oil prices have also weighed on rate expectations, with concerns that persistent inflation could force the Federal Reserve to keep interest rates elevated for longer.
Earnings season begins under pressure
Corporate earnings added another layer of complexity to the market outlook.
Shares of Goldman Sachs fell about 4% despite the bank reporting earnings that beat expectations, albeit by a narrow margin.
Other major financial institutions, including Morgan Stanley, JPMorgan Chase, and Citigroup, also traded lower ahead of their results later this week.
Travel stocks came under pressure as higher oil prices raised concerns about fuel costs.
Shares of Delta Air Lines and JetBlue Airways declined, while energy companies such as Chevron, Exxon Mobil, and ConocoPhillips gained on the back of rising crude prices.
Elsewhere, Sandisk rose after being set to join the Nasdaq-100 index later this month.
As investors weigh geopolitical risks, inflation pressures, and the start of earnings season, markets appear poised for heightened volatility in the days ahead.
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