Investors Brace for Market Volatility After U.S. Strike on Iran

By Saqib Iqbal Ahmed
NEW YORK (Reuters) – Investors are preparing for a potential selloff in stock markets on Monday following the U.S. attack on Iran over the weekend, which raises fears of retaliation and increasing oil prices.

The conflict in the Middle East has taken precedence in market focus, overshadowing upcoming U.S. economic data releases. Investors are evaluating the implications of President Donald Trump’s abrupt decision to support Israel’s military actions against Iran on market sentiment, inflation, and interest rates.

In a televised address, Trump described the attack as “a spectacular military success” and stated that Iran’s nuclear facilities had been “obliterated”. He warned that the U.S. military could target additional sites in Iran unless peace is achieved.

In response, Iran declared its right to defend itself, hinting at severe consequences, and intensified attacks against Israel.

Steve Sosnick, chief market strategist at Interactive Brokers (NASDAQ:IBKR), noted the inevitability of negative reactions in the stock market, depending largely on Iran’s response and fluctuations in oil prices. He emphasized the secondary effects—like oil pricing and economic stability—rather than direct impacts on major stocks.

The S&P 500 index is currently just below its February highs but has bounced back significantly since a selloff in early April due to easing tariff tensions. However, it remains approximately 2.7% below its February closing high and has not yet achieved a new record in 27 trading sessions.

The conflict has already driven oil prices upward, contributing to market caution. Currently, the oil sector appears to have absorbed most of the geopolitical disruptions, with equities showing relative stability. Nevertheless, rising oil prices could trigger inflationary pressures, complicating the Federal Reserve’s interest rate strategies.

The Fed held rates steady on Wednesday, indicating a likelihood for future cuts, but suggested a slower pace due to concerns over increased inflation arising from Trump’s tariff policies. Sonu Varghese, a global macro strategist at Carson Group, underscored the crucial relationship between oil prices, inflation, and monetary policy.

While tensions in the Middle East might induce short-term volatility in stock markets and drive investors toward safer assets like the dollar and Treasuries, some foresee a potential de-escalation. Mark Malek, chief investment officer of Siebert Financial, expressed optimism that the market may respond positively, anticipating the recent U.S. strike was a decisive action rather than a prelude to a prolonged conflict.

As the week progresses, investors will closely monitor an influx of economic data, including U.S. business activity, housing sales, and consumer confidence figures. Despite a recent decline in consumer confidence due to tariff anxieties, there are expectations for improved sentiment, bolstered by controlled inflation and progress in the U.S.-China trade situation.

Mark Hackett, chief market strategist at Nationwide, commented on the optimistic outlook for recovery, noting the previous significant drop in survey-based data during March, April, and May.