Wall Street closed higher Tuesday, rebounding from a volatile session as investors weighed easing concerns about an immediate escalation of conflict in the Middle East against persistent anxieties about the potential for sustained disruption to global energy markets. The Dow Jones Industrial Average rose 239 points, or 0.5%, while the S&P 500 gained 0.8% and the Nasdaq composite climbed 1.4%.
The market’s initial plunge, which saw the S&P 500 drop as much as 1.5%, was triggered by escalating tensions following Iran’s selection of Mojtaba Khamenei to succeed his father as supreme leader. This development, coupled with earlier fears of wider regional conflict, briefly pushed oil prices to nearly $120 per barrel, their highest level since 2022. President Donald Trump’s subsequent statement to CBS News that he believes “the war is very complete, pretty much” appeared to calm those immediate fears, contributing to the late-day rally.
Despite the market’s recovery, significant uncertainty remains. Oil prices, after briefly spiking to $119.50 a barrel, retreated to around $90, but the potential for further volatility persists. Analysts warn that prolonged high oil prices could exacerbate existing inflationary pressures, straining household budgets and increasing costs for businesses. The possibility of “stagflation” – a combination of stagnant economic growth and high inflation – is a growing concern.
The Strait of Hormuz, a critical waterway through which approximately 20% of the world’s oil supply passes daily, remains a focal point of concern. Earlier threats from Iran to disrupt shipping through the strait fueled fears of significant supply chain disruptions. Traders are closely monitoring traffic through the strait, according to Roundhill Financial’s Dave Mazza.
Investor sentiment has shifted towards “haven-first” strategies, with increased demand for safe-haven assets such as U.S. Treasuries, gold, and the Swiss franc. Treasury yields have fallen, with short-term yields reaching levels not seen since 2022. Macro traders are focused on energy markets, anticipating further volatility when trading fully re-opens. Natixis’ John Briggs noted traders are adopting a strategy of “haven first, ask questions later,” reflecting the scale of the attacks and Iranian retaliation exceeding market expectations.
The conflict’s impact extends beyond energy markets. Wall Street firms are bracing for potential disruptions to global trade and investment flows. The prompt-moving nature of the conflict is heightening investor anxiety and prompting a reassessment of portfolio risk.
As of Tuesday’s close, the situation remains fluid, with no immediate indication of further de-escalation or a definitive resolution to the underlying tensions. The U.S. State Department has not issued any further statements regarding the conflict beyond President Trump’s remarks.
