U.S. stock-index futures moved lower on Monday as an intensifying Middle East confrontation raised the prospect of disruptions to energy infrastructure and sent oil prices sharply higher, prompting investors to reassess the timing and likelihood of Federal Reserve policy easing.
Iran’s Revolutionary Guards issued a statement saying Iran would target Israel’s power plants and facilities that supply U.S. bases in the Gulf if U.S. President Donald Trump follows through on his threat to "obliterate" Iran’s power network. The comment added to a risk-off tone across markets and helped drive U.S. crude futures up about 3% to levels above $100 per barrel.
The jump in crude revived concerns about inflation and complicated central bankers’ decisions on interest rates. Traders rapidly scaled back expectations for Federal Reserve interest-rate cuts; CME Group’s FedWatch Tool showed no easing priced in for this year, compared with markets that had been pricing two cuts before the recent outbreak of hostilities. Participants are now also placing more than a 50% probability on a rate increase in the second half of the year, a shift that reflects both geopolitical risk and a more hawkish tone from the Fed at its meeting last week.
At that gathering the Fed projected higher inflation and signaled a single reduction in rates in 2026. Commenting on the dilemma facing policymakers, Ed Yardeni, president of Yardeni Research, said: "If oil and gas prices remain at current levels for the rest of the year, central banks will have to weigh the pros and cons of rate cuts versus hikes. If the war ends by June..., there is little reason for central banks to hike rates in 2026." The Fed’s outlook and the recent spike in energy costs together pushed markets to rethink the path for monetary policy.
By 04:43 a.m. ET, futures tied to major U.S. indexes were lower: Dow E-minis were off 230 points, or 0.5%; S&P 500 E-minis were down 41.25 points, or 0.63%; and Nasdaq 100 E-minis were trading 174.25 points, or 0.72% lower. The CBOE Volatility Index - often cited as Wall Street's fear gauge - rose to its highest level in two weeks, climbing 3.37 points to 30.15.
In premarket trading, U.S. energy stocks were amongst the few pockets of strength. Exxon Mobil and Chevron each gained roughly 1%, and Occidental Petroleum advanced about 1.5% as investors reacted to the higher oil backdrop. Yet broader equity benchmarks had a difficult week: Wall Street’s major indexes posted their fourth consecutive weekly decline on Friday, and the Nasdaq suffered its largest weekly sell-off since early February.
Smaller-cap stocks, which tend to be more sensitive to interest-rate moves, continued to underperform. The Russell 2000 finished Friday over 10% below its January 22 record close, confirming it had entered correction territory, and futures tied to the index were down about 1.2% on Monday.
Markets face a relatively quiet economic calendar this week, with investors parsing business activity surveys and consumer sentiment readings for additional clues on growth and inflation.
Among individual movers, Synopsys rose about 2% in premarket trade after activist investor Elliott Investment Management disclosed a multibillion-dollar stake in the electronic-design-automation company. Precious-metal miners listed in the U.S. slid as gold and silver fell: Newmont dropped roughly 6.1%, Barrick Mining fell about 5.4% and Endeavour Silver declined near 7.8%.
Overall, the combination of renewed geopolitical risk, higher oil prices and Fed communications has prompted traders to pull forward expectations for tighter policy, leaving markets to weigh the competing effects of energy-driven inflation versus prospects for cooler demand if conflict depresses economic activity.