Stocks seesaw as investors brace for Iran war’s economic repercussions

Global stock markets wavered Monday, while oil and gold prices jumped, as investors weighed the disruption to energy supplies after strikes by the United States and Israel against Iran, and retaliation by Iran against targets across the Persian Gulf.

U.S. stocks fell as markets opened in New York, before regaining ground in choppy trade. In the early afternoon, the S&P 500 was flat while the tech-heavy Nasdaq composite and the Russell 2000, which is seen as being more sensitive to shifts in the economic outlook, posted small gains.

Stocks across Europe and Asia fell earlier in the day. The Stoxx Europe 600 index dropped 2.47%, and Hong Kong’s Hang Seng Index tumbled more than 2%. Benchmark indexes in Britain, Japan and Taiwan declined around 1%.

Wall Street has largely shrugged off geopolitical upheaval in recent years, reflecting that conflicts have had little effect on the profits of major publicly traded companies. The last two U.S. military interventions – the capture of Venezuela’s leader, Nicolás Maduro, in January and the bombing of Iranian nuclear facilities in June – had a negligible effect on financial markets.

The escalating turmoil in the Middle East, however, comes at a more precarious time for the stock market, prompting investors to seek refuge in traditional safe-haven assets.

The market dominance of technology companies has waned this year as concerns about artificial intelligence mount. The new drivers are industrial and energy companies, which are more directly tied to the global economy and world events. Some analysts said this had left the market more vulnerable to the current shock from the Iran war.

The price of gold, a haven asset, jumped Monday, although double-digit percentage gains early in the day made way for a more modest increase, of about 2%, to around $5,300 per ounce.

Analysts in Asia noted a wave of “emergency buying” of the dollar, a move that sent regional currencies, including the Japanese yen, sliding against the U.S. currency. An index of the dollar against other major currencies rose 1%, the biggest daily jump since July, lifting the index to its highest level in more than a month.

In Israel, the Tel Aviv stock market’s main index rose more than 3% and the shekel gained against the dollar.

The most acute impact is in the energy market after ship traffic through the Strait of Hormuz, a vital shipping lane for oil leaving the Middle East, dwindled.

International crude oil prices briefly crossed $80 a barrel when trading resumed Sunday before retreating. On Monday, prices hovered near $71 a barrel, up roughly 6%.

The effects of the fighting rippled into other energy markets: European natural gas futures surged some 50% in price Monday, as a large share of the world’s liquefied natural gas, mainly from Qatar, is shipped via the Strait of Hormuz. Qatar’s state-owned energy company said Monday that it had halted production of LNG and related products after military attacks on its facilities in two locations.

OPEC+, a group of eight oil-producing countries, said Sunday it intended to increase oil output next month to “support market stability.”

Oil and gas prices are a cost for most companies, and while short-term fluctuations are unlikely to have much effect on corporate balance sheets or the U.S. economy more broadly, sustained disruption to the oil market could hurt companies that are heavily dependent on oil, like airlines.

Travel and leisure stocks dropped sharply Monday. Shares in U.S. airlines, including United, American and Delta, all dropped more than 2%. Shares in two of the biggest cruise companies, Norwegian and Carnival, fell more than 7%. In Europe, IAG, the owner of British Airways, was down more than 5%. TUI, a German travel agency, tumbled more than 9%.

In contrast, Oil companies, whose stocks have already been lifted in recent weeks as oil prices have been rising, are expected to continue to benefit from the disruption.

Shares in Exxon and Chevron rose about 1%. In London, shares of BP and Shell also posted gains.

“To me, the most obvious thing here is if you are overweight oil stocks, then you are happy,” said Michael Purves, CEO of Tallbacken Capital. He added that the shock from the Iran strikes was likely to further a rotation away from tech stocks and into other parts of the stock market.

“This is probably more a reason to reallocate equities, as opposed to exit equities categorically,” he said.

The jump in oil prices could revive concerns about a resurgence in inflation across advanced economies. That would push up interest rates. On Monday, the yield on government bonds in the United States and Europe rose. The 10-year U.S. Treasury yield climbed by a tenth of a percent, to 4.5%, a large move in that market.

But so far, the broad market impact was somewhat modest. As the latest shock also adds to the risks for the global economy, that could potentially lead to increased expectations of central bank rate cuts in anticipation of any negative impact on the U.S. economy. For now, though, it appeared investors are prioritizing inflation concerns, with expectations for the Fed cutting interest rates this year declining over the week.

Investors have been rewarded over the past year by “buying the dip,” when the market has declined and then quickly recovered. But the conflict with Iran could present a period of prolonged uncertainty for markets as the path to de-escalation in Iran is not as clearly laid out as it was when the United States and Israel targeted Iran’s nuclear facilities in June.

“We would recommend not buying any immediate dip – the risk-reward doesn’t seem compelling,” said Ajay Rajadhyaksha, global chair of research at Barclays. He said the market could fall over the coming days before any rebound.

“There is likely to come a time to buy,” he said, “but not yet.”

This article originally appeared in The New York Times.