Oil prices have reached their highest level since 2022, causing a significant drop in US stock futures due to the escalating conflict in the Middle East. Dow and S&P 500 futures fell 1.3% and 1.6%, respectively, while Nasdaq 100 futures dropped 2%. The leading indices are expected to open significantly lower on Monday unless oil prices cool down.
Brent oil futures surged past $100 a barrel before trending lower to trade around $108, a 17% jump. From the previous close of $92.69, oil made a intra-day high of $119, a jump of nearly 29% on Monday.
Over 17% jump in oil prices on Monday raises concerns that higher energy costs could slow growth and reignite inflation. A spike in inflation poses the greatest risk perceived by the current market. With energy costs going up, there’s a fear of growth slowing down at a time when inflation keeps going up, giving rise to ‘stagflation’ fears. Concerns over rising oil prices also extend beyond their impact on corporate profits, as investors fear they may trigger inflation that could lead the Federal Reserve to postpone interest-rate cuts.
Thomas Verbraken, Zsófia Dabi, MSCI, in a note released last week, said, “We assume a 35% rise in oil prices to reflect a sustained Strait of Hormuz disruption — generating stagflationary pressures that push breakeven inflation and Treasury yields sharply higher, drag U.S. equities down 13% and strengthen the U.S. dollar. Given the nature of the shock, both equities and bonds come under pressure, while energy stocks may benefit from rising oil prices.”
Meanwhile, Iran intensified its attacks on Israel and Gulf nations following the announcement of Mojtaba Khamenei as the successor to his late father, the former supreme leader.
India’s BSE Sensex fell by 2.9%, reaching 76,674, marking its lowest point since April 2025. This drop followed losses from the previous session, driven by weakening sentiment due to escalating US, Israel, and Iran conflicts.
The global markets are feeling the heat with oil prices surging, giving rise to stagflation fears. Tokyo’s benchmark Nikkei 225 index plunged as much as 7% in early Monday trading, while other Asian markets also tumbled. Nikkei 225 index, meanwhile, has recovered a bit, down 5% when last seen.
Global markets are seeing rising oil costs and a stronger dollar. This opens the door to a higher or longer rate scenario, which could push stock prices lower. The role of the US Fed has just become a little tougher from here.
The US 10 Year Government Bond Yield is showing a rising trend. The yield increased to 4.22%, the highest since February 2026. Over the past 4 weeks, the US 10 Year Note Bond Yield gained 6.60 basis points, and in the last 12 months, it decreased 0.20 basis points.
Keep an eye on the US Dollar index, which has risen over 2.5% in the last month, and nearly 1% since the Middle East war began. Only a weakness in the dollar index and a Trump pivot as far as Middle East tensions are concerned can save the market, at least for now.