U.S. stock futures sink, oil prices surge as Iran war shows no signs of letting up

By Mike Murphy

 Rescue workers search a building in Tehran that housed the offices of the Doha-headquartered news network Al Araby TV on Sunday following a missile strike earlier in the day. 

 U.S. stock-index futures fell and oil prices surged again on Sunday, following sharp losses on Wall Street on Friday, as investors are waking up to the reality that the economic effects of the Iran war - now entering its fifth week - are likely to last longer than first expected. 

 Dow Jones Industrial Average futures (YM00) slid more than 300 points, or 0.7%, late Sunday. S&P 500 (ES00) futures fell 0.7% and Nasdaq-100 futures (NQ00) dropped 0.8%. 

 West Texas Intermediate crude prices (CL.1) (CLK26), the U.S. benchmark, shot more than 3% higher, recently trading above $102 a barrel. Brent crude (BRN00) (BRNK26), the global benchmark, was up about 3%. 

 As a Marine Expeditionary Unit arrived in the Middle East - pushing the number of U.S. troops there to around 50,000 - Iran warned Sunday that it would "destroy" any American ground invasion. Meanwhile, U.S. and Israeli forces continued to bombard targets in Iran, including in the capital, Tehran, as the critical Strait of Hormuz remained effectively closed to tanker traffic. And on Saturday, Yemen-based Houthi rebels said they had entered the conflict, firing two missiles at Israel. That raises the threat of renewed missile attacks against shipping in the Red Sea. 

 Along with their ability to harass commercial shipping traffic, "operationally, the Houthis' most meaningful leverage is their ability to threaten Saudi Arabia's Yanbu export hub on the Red Sea - where the East-West (Petroline) pipeline terminates," J.P. Morgan analysts said in a note Sunday. 

 "Taken together, these risks could erode Riyadh's ability to bypass the Strait of Hormuz," the J.P. Morgan analysts said, with that increased risk potentially adding $20 a barrel to the price of oil. Houthi escalation "is becoming less a question of if than of when," they added. 

 Also on Sunday, Pakistan announced it will "host and facilitate" talks between the U.S. and Iran in the coming days, following a meeting of regional powers. Still, the chances of a cease-fire in the near term seem remote. 

 "Piece by piece, the market is beginning to accept that this is not resolving quickly," Stephen Innes, managing partner at SPI Asset Management, said in a weekend note. Oil "is no longer trading headlines," he said. "It is trading scarcity, and that distinction changes everything." 

 "This is not a spike driven by fear alone," Innes added. "This is a repricing of availability. When transit falters and liquidity thins in the futures market, the barrel stops being just a commodity and starts behaving like a constraint on the entire system. And when the barrel becomes policy, everything else has to adjust." 

 On Friday, the Dow DJIA joined the Nasdaq COMP in correction territory, defined as a drop of at least 10% from a recent high. The Dow, S&P 500 and Nasdaq all closed at their lowest levels since last July, and have posted weekly declines for five straight weeks. And while the S&P 500 SPX has not entered correction territory yet, more than half of its industry sectors have. Of the index's 11 sectors, all but energy are in the red for March, according to FactSet data. 

 With oil prices soaring and stocks tumbling, U.S. investors have been left with seemingly nowhere to go, as precious metals (GC00) (SI00) and cryptocurrencies (BTCUSD) have also fallen, while Treasury yields pushed higher last week. 

 "There's really been no place to hide this month," George Cipolloni, a veteran portfolio manager, told MarketWatch last week. "You can't go to stocks, you can't go to bonds, even credit spreads have started to widen out." 

 Read more: Investors have nowhere to hide as financial markets groan under the weight of the Iran conflict 

 President Donald Trump's ability to reassure investors also appears to be waning. His extension last week of an ultimatum on attacking Iranian energy infrastructure did nothing to calm markets, and investors seem to be reacting less to his comments than to tangible news from the Persian Gulf. "The risk is that constant flip-flopping and headline fatigue is starting to seriously undermine the efficacy of the 'Trump put,'" Barclays analysts wrote in a note Friday. 

 U.S. gas prices on Sunday edged ever closer to averaging $4 a gallon, up about $1 a gallon from a month ago. The $4-a-gallon level will likely have a psychological effect on consumers, with ever-rising gas prices likely  forcing some households to drive - and consume - less. That could have an effect on everything from vacations to trips to the grocery store. 

 See: Gas prices are nearing this 'psychological wall.' One group of drivers might smash right through. 

 This week, investors will also be looking at a number of earnings reports from consumer-focused companies, including Nike (NKE), Conagra Brands (CAG) and Dave and Buster's Entertainment (PLAY), which should shed more light on the state of consumer spending. 

 It'll be a short week, with markets closed for the Good Friday holiday, though the March jobs report will still be released Friday. 

 -Mike Murphy 

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03-29-26 2010ET

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