Oil and gas prices surged while the dollar and safe-haven gold rallied on Monday as the U.S.-Israeli air war against Iran widened and looked set to last for weeks, prompting worries that it could upend a global economic recovery and perhaps reignite inflation, Reuters reported.
In response, global equity indexes underperformed U.S. stocks and Treasury yields rose on inflation fears.
Oil futures settled sharply higher after the Israeli and U.S. strikes on Iran and retaliation by Tehran forced shutdowns of oil and gas facilities across the Middle East and disrupted shipping in the crucial Strait of Hormuz, while investors worried about how long the war would last.
U.S. crude prices settled up 6.28%, or $4.21, at $71.23 a barrel while Brent settled at $77.74 per barrel, up 6.68%, or $4.87.
MSCI's gauge of stocks across the globe (.MIWD00000PUS), opens new tab also pared losses but was down 6.77 points, or 0.64%, to 1,049.99 at the end of the U.S. trading day. Earlier, the pan-European STOXX 600 (.STOXX), opens new tab index finished down 1.35%.
After earlier falling more than 1%, the S&P 500 managed to close very slightly higher with support from the energy (.SPNY), opens new tab, defense (.SPLRCAERO), opens new tab and technology (.SPLRCT), opens new tab sectors.
"A lot of the worry today is about inflation and oil because of the conflict happening in the Middle East," said Lindsey Bell, chief investment strategist at 248 Ventures, adding that these concerns kept investors focused on U.S. equities where they saw greater certainty in "earnings and economic growth than in other parts of the world."
Among the S&P 500's 11 major industry sectors, the technology sector rose 0.9% and was the third-biggest percentage gainer behind a roughly 1% gain in the industrials index (.SPLRCI), opens new tab, which includes defense stocks, and energy (.SPNY), opens new tab, which rose nearly 2% due to the oil rally.
"In times of uncertainty, tech becomes defensive because it has the earnings growth, margin expansion and positive cash flow that other sectors don't have," Bell said.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, said that global markets were on edge but investors did not seem to be panicking or predicting a worldwide economic collapse.
The Dow Jones Industrial Average (.DJI), opens new tab fell 73.14 points, or 0.15%, to 48,904.78, the S&P 500 (.SPX), opens new tab rose 2.74 points, or 0.04%, to 6,881.62 and the Nasdaq Composite (.IXIC), opens new tab rose 80.65 points, or 0.36%, to 22,748.86.
The CBOE volatility index (.VIX), opens new tab, sometimes referred to as Wall Street's fear gauge, pared gains after rising earlier to 25.24, its highest point since November. It finished up 1.58 points at 21.44.
In government bonds, U.S. Treasury yields rose across durations as an early bout of safe-haven buying over the risk of a drawn-out conflict gave way to concern about the potential for a global inflation spike due to the surge in oil prices.
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