Dow, S&P 500, Nasdaq Weaver, Oil Slide as Wall Street Weighs Iran War Signs

U.S. stocks were mixed on Tuesday as investors weighed President Trump’s comments about ending the Iran war against Defense Secretary Hegseth’s remarks that the heaviest barrage of strikes will occur on Tuesday.

The Dow Jones Industrial Average (^DJI) and S&P 500 (^GSPC) lost about 0.1% and 0.2%, respectively, in the minutes after the opening bell. Moving in the other direction, the tech-heavy Nasdaq Composite ( ^IXIC ) rose nearly 0.1%.

Markets are jittery after reports of an oil tanker explosion near Abu Dhabi. Oil prices fell late Monday after Trump said the U.S. attack on Iran was “very thorough, very thorough,” leaving it about 6% in the red.

On the calendar, investors will get February’s Consumer Price Index on Wednesday, January’s Personal Consumption Expenditure Index on Friday. Oracle ( ORCL ) is scheduled to report after the market closes on Tuesday, while Adobe ( ADBE ) is due on Thursday.

Investors are misunderstanding how the Federal Reserve is likely to react to higher oil prices, Bank of America economist Aditya Bhau said in a note on Tuesday morning.

The Iran war has thrown the Fed’s price calculations into disarray, with many observers suggesting that rising oil prices will further tighten the Fed. Rising energy costs, if sustained, will push headline inflation higher. As inflation rises, the Fed is thought to be less likely to cut rates, fearing that would risk overheating the economy.

Instead, Baha said, “supply shocks pose risks to both sides of the Fed’s dual mandate.” Instead, Bhave wrote, “Conditions matter. Compared to 2022, the labor market is not as hot, inflation is not as high, and fiscal support is not as large.”

Bhau noted that since the start of the conflict, two-year Treasury yields — often taken as a reading of expectations for the Federal Reserve’s policy rate over the next two years — have largely tracked oil prices.

“This can be a mistake,” Bhu wrote, arguing that supply shocks “grease the legs” of the policy divide and pose major risks to both increases and decreases.

“When Russia invaded Ukraine, the U-rate was below 4%, core PCE inflation was over 5%, wages were running at 500k/month and consumers were flush with covid-stimulated cash.” “In contrast, we now have a soft labor market, moderately high inflation and more moderate fiscal support. This sets us up for a more aggressive Fed response if the oil shock persists.”

Exxon ( XOM ) CEO Darren Woods told me (by phone) _ about the current situation in the oil industry:

“Obviously, the Middle East is a concentrated source of supply through the Strait of Hormuz, a narrow passage that most of the world’s supplies have to go through, and we’re seeing that play out here in real time. From a company perspective, obviously, we’re very focused on making sure that the people that we have working there in the various countries of the JVs are safe) and making sure that our people are safe. And then I think more broadly, just with our operations around the world, everybody’s going to be affected. Markets are global. Prices are enclosed. Through this global market, we ensure that we operate and have diverse sources of supply so that we can run our operations and fundamentally meet the demands of all the communities in which we operate.

Oil prices remained in the red as of Tuesday morning after comments from President Trump on Monday evening that suggested the war could end soon.

Global benchmark Brent (BZ=F) and U.S. benchmark West Texas Intermediate (WTI) crude oil (CL=F) were trading at around $87.90 a barrel and $89 a barrel, respectively, after both products opened above $100 on Sunday evening and settled at around $119 each.

In comments to CBS News, Trump said he believes the war is “very, very complete” and that the US is “very far” ahead of its projected timeline. This is while, in a press conference to House Republicans on Monday evening, the President said that America “has not won enough” and that he will not “allow a terrorist regime to take the world hostage and try to cut off the world’s oil supply.”

The president’s mixed comments highlighted a hurdle for markets: Trump is hinting at an imminent end to the war, but his remarks alone will reopen the Strait of Hormuz, which remains essentially closed (although data shows that a very small amount of crossing may have resumed).

Underscoring the uncertainty of the situation, Saudi Aramco CEO Amin Nasser said in comments on the company’s earnings this morning that the Iran war is “the biggest crisis in the region’s oil and gas industry.” He said if the strait is not opened soon, the consequences will be “catastrophic” for the global economy.

Two years from Saudi Aramco (2222.SR) earnings this morning.

One from the Jefferies research team, from the management of a top oil exporter, notes: “All areas are safe and functioning normally, starting with a precautionary shutdown after the drone intervention with Ross Tanora.”

And that drew my attention to the earnings call by CEO Amin Nasser. He was asked how quickly the company would resume oil shipments once the Strait of Hormuz returns to normal:

“We can grow in days, not weeks, for sure.”

A new chart from Goldman Sachs caught my attention this morning with oil prices (CL=F, BZ=F) continuing to slide. It appears to be producing some oil through the Strait of Hormuz.