US stock futures and early trading on Monday showed a rebound, with the Dow Jones Industrial Average rising over 300 points and the S&P 500 and Nasdaq also gaining. This uptick occurred despite a backdrop of intensifying geopolitical conflict in the Middle East, which is directly impacting energy markets and reshaping monetary policy expectations.
The primary driver of market sentiment was a series of remarks from former US President Donald Trump, who suggested the US could "take the oil" in Iran and floated seizing key infrastructure like Kharg Island. He later reiterated warnings that Iran must reopen the Strait of Hormuz or risk US attacks on its energy infrastructure. These comments, alongside the entry of Yemen's Houthi militia into the conflict and additional US troop deployments, have heightened fears of major supply disruptions.
The energy market reacted sharply, with Brent crude oil surging above $115 per barrel, marking a climb of more than 50% in recent weeks. This surge boosted energy stocks like Exxon Mobil and Chevron but has also reignited inflation fears. According to the CME FedWatch Tool, money markets have made a dramatic shift: they are no longer pricing in any interest rate cuts from the Federal Reserve this year, a stark reversal from previous expectations of two cuts.
This shift comes ahead of a crucial week of economic data and central bank commentary, with Fed Chair Jerome Powell and New York Fed President John Williams scheduled to speak. The monthly jobs report remains a key focus for shaping future policy. The bond market reflected this cautious outlook, with the benchmark 10-year Treasury yield hovering near 4.4% after recent volatility.
The broader market context is one of significant stress. Last week's selloff pushed the Dow Jones, Nasdaq Composite, and Russell 2000 into correction territory (down more than 10% from highs). Morgan Stanley downgraded global equities to "equal weight," though noted fund flows have favored US assets as a relative safe haven. Global markets diverged sharply, with Asian indices like Japan's Nikkei falling steeply due to energy import dependence, while European markets showed relative resilience.
