US stock futures turned sharply lower Monday morning after a weekend surge in US-Iran tensions rattled confidence in the Strait of Hormuz reopening. Dow futures dropped 0.70%, with S&P 500 and Nasdaq 100 contracts each off roughly 0.6%. Oil prices soared over 6% in early trading as the narrative around Middle East stability reversed sharply in under 24 hours. The market may now need to reappraise how much optimism was baked into the past three weeks’ rally.
Three Weeks of Gains Built on Strait of Hormuz Optimism
Heading into Monday, the S&P 500 and Nasdaq Composite were sitting at all-time highs following Friday’s close—marking a third straight winning week. The latest push higher was driven by optimism after Iran declared the Strait fully open to commercial traffic. The Dow jumped about 2.2% Friday, the S&P 500 added 1.4%, and sector flows favored financials, discretionary, and tech—areas that lagged through much of March but rebounded on the easing geopolitical risk.
Oil’s 6%-plus Monday jump took West Texas Intermediate crude to about $88 per barrel and Brent to just above $96—levels still below the psychologically important $100, but a sign of how much reopening optimism had been priced into assets. The market’s core assumption that the Strait would remain open—enabling continued upward momentum—was sharply challenged as US-Iran concerns resurfaced.
Stress hit Europe too: Germany’s DAX fell 1.3%, France’s CAC 40 dropped about 1.1%, the Stoxx 600 slid 0.9%, and even the FTSE 100 was 0.4% lower at the open. Overnight, Asia-Pacific markets had traded mostly higher, but US futures erased those gains as the new round of tensions hit newswires.
Stocks365 Take: Pullback Lands in a Pivotal Earnings and Rate Week
While geopolitics dominates the headlines, this retreat collides with one of the most important earnings weeks of the quarter—Tesla and Intel are both reporting. Meanwhile, the bond market backdrop is being overlooked: the 10-year Treasury yield at 4.274% and the 2-year at 3.741% mark modest drops from last week, even as policy expectations remain stable.
The CME FedWatch tool gives a 99.5% probability of the Fed holding rates steady at its April meeting. While the Fed remains in the background for now, Tuesday’s Senate Banking Committee confirmation hearing for the Fed chair nominee (10 a.m. ET) could inject unexpected volatility if new policy signals emerge. Add in major earnings risk, and markets relying solely on a geopolitical rebound may find little room for error.
For individual names, Tesla and Intel’s reports come as last week’s catch-up rally in tech and discretionary stocks created potentially fragile positioning if the macro narrative slips. The earnings results will play a central role in determining whether any pullback attracts buyers, or marks the start of a broader re-pricing of risk assets.
History Rhyme? This Is Not June 2019
Some may recall the June 2019 Gulf of Oman tanker attacks and resulting US-Iran tensions, which drove a temporary spike in crude prices and equity volatility. However, with US equity valuations at record highs and the recent rally compressed into just a week, conditions today are less forgiving. In 2019, the Federal Reserve was on the verge of rate cuts, cushioning the blow from geopolitical flare-ups. This time, with rates holding firm and little prospect of near-term cuts, there is less of a central bank backstop beneath risk assets.
What to Watch: Oil, Earnings, and Policy Events
Traders should pay attention to Brent’s approach to $100 and whether WTI can breach $90. So far, prices remain below these key thresholds, enabling the argument of a temporary spike. But any further escalation before Thursday’s Jobless Claims data could force a major rethink. With no economic data due Monday, the next big tests come with Tuesday’s Fed chair hearing and company earnings, followed by Friday’s University of Michigan Sentiment survey and the New York Fed’s Nowcast. How the market digests these crosscurrents may dictate not just the fate of last week’s rally, but the tone for risk-taking into May.