Markets took a beating early Tuesday after President Donald Trump warned Americans to leave Tehran and doubled down on backing Israel in the war it started with Iran.
The effect was instant. Dow futures dropped 136 points, the S&P 500 lost 0.34%, and the Nasdaq 100 slipped nearly 0.4% before the market opened. Crude oil futures jumped 2% overnight, with West Texas Intermediate leading the charge as investors reacted to growing geopolitical risks.
Meanwhile another post from Trump followed, and it read: “Iran should have signed the ‘deal’ I told them to sign. What a shame, and waste of human life. Simply stated, IRAN CAN NOT HAVE A NUCLEAR WEAPON. I said it over and over again!” The market didn’t wait to interpret that.
Stocks dropped as crypto held strong
Earlier Monday, Wall Street had actually closed with gains. The Dow Jones Industrial Average added over 300 points, the S&P 500 climbed about 0.9%, and the Nasdaq Composite gained 1.5%. That short-lived rally was driven by easing oil prices after the spike on Friday that followed Israel’s airstrikes on Iran.
Both Brent crude and West Texas Intermediate settled more than 1% lower during Monday’s session before bouncing back overnight on Trump’s warnings.
Source: TradingView
Meanwhile, Bitcoin remained above $107,000, having retaken that level earlier on Monday. The leading crypto asset didn’t flinch despite the turmoil across equities.
At the same time, gold retreated to $3,393, falling below the $3,400 level. Traders had expected the usual safe haven behavior, but Bitcoin held firmer than gold this round, though that isn’t really impressive.
By last night, the Israel-Iran war had entered its fourth day. NBC News reported that Iran reached out to Saudi Arabia, Qatar, and others asking them to push Trump for a ceasefire. The request reportedly included Iran’s offer to show flexibility on nuclear negotiations if the White House pressured Israel to back down. Trump instead made clear he wouldn’t budge and took a public, hard-line stance.
Source: TradingView
Jeff Buchbinder, chief equity strategist at LPL Financial, explained that Israel’s main focus is stopping Iran from becoming a nuclear threat. He added that the longer-term objective may be regime change in Tehran, though it’s unclear whether that’s achievable.
Jeff said that while every conflict is unique, data from 25 geopolitical events since 1941—including the Pearl Harbor attack—shows an average stock market drop of 4.6% over about 19 days, with recovery usually taking around 40 days. The current dip in futures may just be the beginning if the escalation continues.
Investors are also watching domestic economic data closely. Retail sales numbers for May are due Tuesday, and that could give further insight into consumer demand amid inflation worries. But the real focus is on the Federal Reserve’s policy meeting scheduled for Wednesday.
The CME FedWatch tool shows traders are betting heavily that the Fed will keep interest rates steady, sticking with the 4.25% to 4.50% range. That decision, however, may not be enough to calm markets already rattled by events in the Middle East.
