As the U.S.-Israel military campaign against Iran began its fourth day with little indication of a de-escalation, a wave of selling surged through the world’s equities markets on Monday and Tuesday. Investors were alarmed by the prospect of extended energy disruption and a new spike in inflation.
According to The Wall Street Journal, the Dow Jones Industrial Average fell more than 1,000 points on Tuesday, March 3, setting the stage for its biggest single-day decline since April 2025. Tuesday’s pre-market trade saw a 1.5% and 1.9% decline in the S&P 500 and Nasdaq 100 futures, respectively. After initially falling more than 1%, U.S. markets had recovered late in the day, with the S&P 500 ending almost flat and the Nasdaq Composite rising 0.4%.
Asia And Europe Take The Brunt Of It
The losses were more severe for markets that were more dependent on oil supply from the Middle East. The announcement that the Strait of Hormuz, which over 20% of the world’s oil travels through, had been closed to shipping caused the pan-European Stoxx 600 to plummet 1.7% on Monday to a two-week low and then further 2.5% in early Tuesday trading.
In its worst session in 19 months, South Korea’s Kospi sank 7.2% on Tuesday. Samsung Electronics and SK Hynix both had declines of around 10% and 12%, respectively. China’s Shanghai Composite fell 1.4%, while Japan’s Nikkei 225 fell 3.1%. Tuesday’s 3.3% decline in the MSCI Asia Pacific Index increased its two-day loss to 5.1%.
Given their exposure to the Middle East, UK bank equities were among the most severely impacted in Europe. According to Reuters, the larger European banking index lost 3.6% on Monday, while HSBC, Barclays, and Standard Chartered plunged 4% to 5%.
Losers, Winners, And The Run For Safety
Defense and energy stocks were unusually strong. On Monday, RTX gained more than 4%, Lockheed Martin increased more than 3%, and Northrop Grumman jumped more than 5%. Exxon Mobil and ConocoPhillips, two of the biggest oil companies, also saw a spike as Brent crude broke beyond $85 per barrel for the first time since mid-2024.
As investors flocked to safe-haven assets, gold reached $5,400 an ounce on Monday; however, futures erased gains to close at $5,342.80. JPMorgan predicted that the risk premium for gold will rise by 5% to 10% in the near future.According to Michael Kantrowitz, chief investment strategist at Piper Sandler, “oil prices are likely to fully shift to equity markets as a primary driver of price action.” “Equities will be under pressure until oil prices stop rising.”
Additionally, rising oil prices caused U.S. Treasury yields to rise; on Tuesday, the 10-year yield broke 4% and rose to 4.1%. Financial equities and other rate-sensitive industries are under additional pressure as traders have reduced their expectations for rate cuts by the Federal Reserve due to the possibility of stickier inflation. “What’s the duration of this conflict?” is the question that markets are currently facing, according to one strategist, given Iranian officials’ threats to strike ships in the Strait of Hormuz.