U.S. equity futures slipped late on Sunday as investors shifted to a more cautious stance after a record-setting week on Wall Street. Renewed friction between the United States and Iran rattled risk appetite, contributing to gains in oil and adding uncertainty to near-term market direction.
By 20:02 ET (00:02 GMT), S&P 500 Futures had fallen 0.8% to 7,105.25 points. Nasdaq 100 Futures were down 0.6% at 26,655.75 points, while Dow Jones Futures dropped 1% to 49,168.0 points.
Market sentiment soured after Iran said it would not take part in a second round of talks that U.S. officials had hoped would take place before a temporary ceasefire expires on Tuesday. Tensions escalated further following comments from U.S. President Donald Trump that American forces had fired on and taken control of an Iranian-flagged cargo ship in the Gulf of Oman.
In the same comments, the president warned that the U.S. could "blow up all power plants and bridges" in Iran if Tehran did not agree to a deal. The situation intensified fears about regional stability and potential disruptions to energy shipments.
The Strait of Hormuz, a crucial artery for global oil shipments, was reported closed again. That development renewed concerns about possible supply interruptions and contributed to a rebound in crude prices during Asian trading on Monday, as traders factored in the risk of tighter global supply and potential inflationary effects.
The rise in oil followed a brief easing of geopolitical risk the prior week, when a ceasefire agreement between Iran and Lebanon and the reopening of the strait had helped lower risk premiums and supported a rally in global equities.
Wall Street entered the most recent session coming off a robust performance. The S&P 500 and the Nasdaq Composite reached fresh record highs during the previous week amid improved sentiment. Over that week, the Nasdaq gained about 6.8%, the S&P 500 rose roughly 4.5%, and the Dow climbed more than 3%, marking their best weekly results in months.
Investors are now closely following geopolitical headlines for cues on near-term market direction. Rising crude prices are seen as a potential complication for the inflation outlook and could bear on expectations for Federal Reserve policy, introducing another variable to the markets already reacting to geopolitical risk.
Given the fluid situation, market participants remain sensitive to further developments around the ceasefire expiry and any additional military or diplomatic actions that could affect oil flows or broader risk sentiment.