The S&P 500 Index has extended its sharp decline, hitting its lowest level since November 2025. The index closed at $6,637, a drop of over 5.2% from its year-to-date high, as escalating conflict in the Middle East and looming inflation data rattled investors.
The ongoing war between the US/Iran and Israel has become a primary market catalyst. Over the weekend, Israel bombed a key Iranian refinery, intensifying the conflict. This has triggered a surge in global energy prices, with Brent crude oil soaring from a year-to-date low of $55 to over $115. The spike in oil and other energy products like natural gas is expected to feed into higher US inflation, putting pressure on the Federal Reserve's monetary policy.
Market sentiment is further clouded by the upcoming US Consumer Price Index (CPI) report scheduled for Wednesday. Economists forecast the headline CPI to rise to 2.5% in February. A hotter-than-expected print, combined with soaring energy costs, could force the Fed to maintain a hawkish stance, delaying anticipated interest rate cuts. Higher bond yields reflect this concern, with the 10-year Treasury yield rising to 4.17%.
Wall Street analysts are turning bearish. JPMorgan warned that if the war persists, the S&P 500 could enter a correction, defined as a 10% drop from its peak, potentially pushing it to $6,300. Research firm Yardeni increased its odds of a market meltdown to 35% from 20%. Technical analysis also points to further downside, with the index breaking below a key rising wedge pattern, suggesting a potential fall toward the $6,000 support level.
Some analysts suggest a potential rebound hinges on geopolitical de-escalation. Reports last week that Iran reached out to the US for talks provided a brief market lift. Furthermore, there is speculation that President Donald Trump, who pays close attention to stock market performance and inflation, may seek an "off-ramp" to the conflict to stabilize markets.
The market will also digest corporate earnings from key companies this week, including Oracle—a major player in the AI sector—and Adobe, whose results may indicate competitive pressures from AI firms like OpenAI.
