Investors sold the dip with some enthusiasm and a strong bid emerged for AI-focused shares.
Gains in energy, tech and defense stocks offset losses in other sectors. The Dow Jones Industrial Average fell 0.15% to 48,904.78 points, while the S&P 500 added 0.04% to 6,881.60 points and the Nasdaq Composite rose 0.36%, to 22,748.86 points.
Investor confidence in U.S. markets, and optimism about manufacturing gains linked to artificial intelligence, are easing concerns about rising oil prices and geopolitical turmoil, said Alex Morris, CEO of F/m Investments.
“The overall action in the Middle East doesn’t have a significant impact on the average American stock as we measure it,” Morris said.
“I don’t think the average market participant is going to move because of the conflict until the price of oil reaches $100 a barrel, which will be an emotional trigger.”
The coordinated US and Israeli strikes on Iran over the weekend killed Tehran’s supreme leader, Ayatollah Ali Khamenei, and sent shockwaves through international markets. Oil prices rose and many foreign stock indices fell. The bargain hunters emerged after an early sell-off among U.S. investors, reflecting expectations that the stakes will be limited.
“Market participants think that this is all temporary and that the problems in the oil patch will go away,” said Bill Smid, founder and chairman of Smid Capital Management. The clash initially pushed up defense stocks and energy prices and pressured the sensitive travel and leisure sectors. Later, investors flocked to technology and weighed how long the Middle East conflict could last and what the war means for inflation and Federal Reserve policy.
Smid said investors are turning to well-known, high-performing stocks such as Nvidia, the top seven technology stocks and defense sectors.
“When people are scared, they go back to what’s comfortable,” he said.
Nvidia gained 3% and Microsoft climbed 1.5%, recovering from sharp declines last month. The gains helped the S&P 500 and Nasdaq pare losses after both briefly touched two-week lows in the session.
In Europe and Asia, stock markets sank under the weight of rising oil prices and war-induced uncertainty.
French and German stock markets fell more than 1%. Japan’s Nikkei 225 fell 1.73%, down as much as 2% at the open. Energy companies, whose profits rise with oil prices, performed well, while travel and airline stocks were weighed down by flight cancellations, higher jet fuel costs and widespread Middle East airport closures.
Delta and United Airlines each fell more than 2%, while crude price-sensitive cruise stocks such as Carnival lost 7.6% and Norwegian Cruises fell more than 10%. Several oil and gas facilities in the Middle East stopped production. US crude oil prices settled 6% higher at $71.23 a barrel after doubling during the session. Brent rose 6.68% to $77.74 a barrel.
Defense stocks also rose, with the main benchmark of U.S. defense equities, the Dow Jones U.S. Defense Index, trading higher. President Donald Trump also told CNN that the “big wave” has yet to come, although some Middle Eastern countries are lobbying U.S. allies for a quick end to the war. AES Corp. fell 17.8% after a consortium led by BlackRock-owned Global Infrastructure Partners and private equity firm EQT AB agreed to acquire the utilities company at a $33.4 billion discount to its latest close.
