U.S. stock index futures moved lower Monday evening, reversing earlier gains as fresh hostilities between the United States, Israel and Iran heightened market uncertainty. The flare-up in the Middle East, combined with stronger-than-expected U.S. purchasing managers index data for February, produced a day of sharp intraday swings on Wall Street.
By 20:00 ET (01:00 GMT), S&P 500 Futures were down 0.3% at 6,867.0 points. Nasdaq 100 Futures slid nearly 0.4% to 24,922.25 points, while Dow Jones Futures were off 0.3% at 48,807.0 points.
Market action during the session
Equity benchmarks rebounded from steep intraday losses to finish the regular session marginally higher, supported in part by stronger business activity readings and some bargain hunting in beaten-down technology shares. The S&P 500 ended the day essentially flat, the Dow Jones Industrial Average declined 0.2%, and the NASDAQ Composite gained 0.4%.
Technology names led the late-session gains, with chipmakers showing particular resilience after a difficult February. Nvidia rose 2.9% on the day after suffering a 7.3% drop in the prior month. Volatility remained elevated across the market, with the CBOE Volatility Index jumping nearly 8% on Monday.
Geopolitical developments weigh heavily
Investors stayed focused on the Middle Eastern conflict as U.S., Israeli and Iranian leaders gave no indication they planned to de-escalate. The United States and Israel carried out attacks on Iran over the weekend, prompting what the report describes as bitter retaliation by the Islamic republic.
Iran responded with drone and missile strikes against Israel and several nearby countries, and senior Iranian officials stated they did not intend to negotiate with the United States. Those ongoing exchanges kept risk sentiment fragile through the trading day.
Market participants flagged the potential inflationary impact of the conflict, particularly through higher energy prices. Oil climbed in response to the hostilities, prompting concern that a sustained rise in crude could feed into broader inflation and pressure central banks to adopt a more hawkish stance.
“The rise in the oil price represents a negative supply-side shock, which raises inflation and downside growth risks. The outcome for economies will depend on how long the conflict lasts,” ANZ analysts said in a note.
Economic data: U.S. PMI surprises on the upside
Adding to market dynamics, U.S. purchasing managers index data for February from the ISM printed stronger than initial expectations. The ISM report showed manufacturing activity expanded for a second consecutive month and that new orders rose sharply beyond forecasts.
Importantly, the ISM also recorded a sharp rise in manufacturing prices in February, a move that preceded the potential additional energy-driven inflation stemming from the Middle Eastern conflict. The PMI release followed stronger-than-expected producer inflation data for January, which was published last week.
Those inflation signals have heightened concern that the Federal Reserve may be forced to keep interest rates at current levels for longer to tame persistent price pressures. Several Federal Reserve officials are scheduled to speak in the coming days, which could provide further guidance on the policy outlook.
Outlook for markets and investors
Mondays trading illustrated how rapidly sentiment can shift when geopolitical risk and fresh economic data converge. The interplay between the continuing conflict and domestic inflation readings left markets in a state of cautiousness, with investors monitoring both developments and upcoming Fed commentary for clues about the path of interest rates.
Given the frail tone across markets and elevated volatility readings, market participants are likely to remain sensitive to further military developments, energy price movements and incoming economic indicators in the near term.