Summary:
Indexes down: Dow 0.73%, S&P 500 0.58%, Nasdaq 0.61%
Airline and financial stocks take a hit, defense stocks rise
Investors turn to safe havens, including precious metals, dollar
BlackRock-led consortium to acquire AES Corp for $33.4 billion
Wall Street's main indexes were lower on Monday as investors braced for a prolonged Middle East conflict that threatened to disrupt global trade routes and reignite inflationary pressures.
Sectors that were hit the most included airlines, as a number of carriers halted flights, while several oil and gas facilities in the Middle East stopped production, which pushed crude prices up over 8%.
That painted an overall cloudy outlook for the global economy and also weighed on financial stocks.
Delta (DAL.N) and United Airlines (UAL.O) tumbled over 3% each.
The S&P 500 financial index (.SPSY) was down 1% with big banks such as Bank of America (BAC.N) and Citigroup (C.N) trading lower.
Investors instead flocked to traditional safe havens such as the dollar . Higher precious metals prices helped miners such as Kinross Gold <KGC.N> and Harmony Gold add 1% each.
Defense stocks also got a boost, with Lockheed Martin (LMT.N) and RTX (RTX.N) gaining over 3% each, while Kratos (KTOS.O
After coordinated U.S. and Israeli strikes on Iran over the weekend killed Tehran's Supreme Leader, Israel launched retaliatory attacks following air strikes by Iran and Hezbollah militants in Lebanon, deepening fears that the conflict could widen further across the region.
President Donald Trump suggested that strikes on Iran could go on for the next four weeks.
Adam Turnquist, chief technical strategist for LPL Financial, said that market losses were contained as investors had been anticipating a conflict over the past few weeks.
"The market is taking it relatively well just given where oil is and the likelihood this is going to play out for four weeks - it's not another weekend event."
At 09:52 a.m. ET, the Dow Jones Industrial Average (.DJI) fell 355.68 points, or 0.73%, to 48,622.24, the S&P 500 (.SPX) lost 40.14 points, or 0.58%, to 6,838.74 and the Nasdaq Composite (.IXIC) lost 139.42 points, or 0.61%, to 22,528.79.
The S&P 500 and the Nasdaq briefly touched their lowest levels in about two weeks earlier in the session but recouped losses on a 1.7% gain in the energy (.SPNY) sector. All other major sectors on the S&P 500 traded in the red.
Wall Street's fear gauge, the CBOE VIX (.VIX), jumped 3.1 points to a three-month high of 21.96.
The escalation comes at a precarious moment for markets already rattled by AI disruption concerns, private credit jitters and trade policy uncertainty - factors that drove the S&P 500 and the Nasdaq to their steepest monthly declines since March 2025.
A sustained oil price spike threatens to amplify inflationary pressures just as U.S. tariffs push prices higher, data showed on Friday.
Wells Fargo's Ohsung Kwon warned the S&P 500 could fall to 6,000 points, nearly 13% below its last close, if crude surpasses $100 per barrel, with earnings potentially taking a 1.3% hit.
Oil companies Occidental Petroleum (OXY.N) gained 2.5% and ConocoPhillips (COP.N) added 4%, while crude-price-sensitive cruise stocks Carnival (CCL.N) and Norwegian Cruise (NCLH.N) fell over 10% each.
Separately, Norwegian Cruise forecast annual profit below Wall Street expectations.
A consortium led by BlackRock-owned (BLK.N) Global Infrastructure Partners and equity firm EQT AB (EQTAB.ST) agreed to acquire AES Corp (AES.N) for $33.4 billion, including debt.
However, the utilities company's shares fell 16.3% as the offer was at a 13% discount to the last close.
On the data front, investor focus will shift to a key non-farm payrolls report later in the week.
Declining issues outnumbered advancers by a 2.92-to-1 ratio on the NYSE and by a 2.58-to-1 ratio on the Nasdaq.
The S&P 500 posted 37 new 52-week highs and three new lows, while the Nasdaq Composite recorded 51 new highs and 120 new lows.
Reporting by Pranav Kashyap, Johann M Cherian, Shashwat Chauhan and Ragini Mathur in Bengaluru; Editing by Sherry Jacob-Phillips, Maju Samuel and Anil D'Silva