BY COMFORT OGBONNA
U.S. stock index futures fell as investors weighed the impact of intensified U.S. and Israeli strikes on Iran, while also preparing for the possibility that rising energy prices could fuel higher inflation. The escalating conflict has roiled markets, with oil prices surging 2.2%, gold extending its rally for a fifth consecutive session, the U.S. dollar strengthening, and the 10-year Treasury yield climbing to its highest level in over a week.
The heightened tensions follow a joint air campaign by the U.S. and Israel against Iran on Saturday, targeting Tehran and reportedly resulting in the death of Iranian Supreme Leader Ali Khamenei. In retaliation, Iran and its proxy group Hezbollah launched counterstrikes, drawing the wider Gulf region further into the conflict. U.S. President Donald Trump defended the campaign, describing it on Monday as progressing “ahead of expectations” and indicating that a broader, open-ended military engagement may be underway.
Investors are increasingly concerned about the potential inflationary impact of an energy supply shock. The closure of the Strait of Hormuz, a vital global oil transit route, has raised fears that oil prices could escalate further, sending costs through the broader economy. Such a surge could complicate the Federal Reserve’s already delicate balancing act, as hot inflation readings continue to challenge policymakers, some of whom have expressed diverging views on the future path of interest rates. Market expectations now suggest that the Fed is unlikely to reduce rates in the near term.
Attention is turning to a packed schedule of U.S. economic data later this week, including January retail sales, ADP employment figures, and the closely watched non-farm payrolls report, which could provide further clarity on the economy’s resilience amid geopolitical pressures.
At 2:41 a.m. ET, Dow E-minis were down 494 points, or 1.01%, S&P 500 E-minis were down 72.5 points, or 1.05%, and Nasdaq 100 E-minis were down 332.75 points, or 1.33%. On Monday, Wall Street opened lower but stabilized as bargain hunters stepped in, boosting shares of artificial intelligence leaders such as Nvidia and Microsoft.
Travel and airline stocks, however, faced significant pressure due to flight cancellations, higher jet-fuel costs, and widespread Middle East airspace closures. The S&P 500 ended the day essentially flat, the Nasdaq added 0.4%, and the Dow slipped 0.1%.
Investors will also be closely monitoring comments from Federal Reserve officials, particularly in light of recent internal disagreements over the direction of interest rates. Speaking engagements later in the week are scheduled for voting members John Williams, Jeffrey Schmid, and Neel Kashkari, with markets hoping for guidance on how policymakers plan to navigate inflationary risks amid geopolitical uncertainty.
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