U.S. Stocks Decline Amid Ongoing Uncertainty Over Iran Conflict Outlook

Wall Street ended lower on Tuesday as renewed tensions in the Middle East rattled sentiment, even as investors continued to bet on an eventual diplomatic breakthrough between the US and Iran.

The S&P 500 slipped around 0.2%, while the tech-heavy Nasdaq Composite fell about 0.3%, snapping its 13-day winning streak after logging three consecutive record closes last week. The Dow Jones Industrial Average was largely flat, edging marginally lower, while the small-cap Russell 2000 bucked the trend to rise 0.5% and hit a fresh intraday high.

The cautious close followed a chaotic weekend that reignited geopolitical risks. Iran signalled that the Strait of Hormuz would not remain open during the ongoing ceasefire with Lebanon, while the US seized an Iranian vessel off the coast of Oman. The developments cast fresh doubt over already fragile peace talks.

Bank of America has warned that investors may be underestimating risks from the Iran conflict, even as markets trade near pre-war levels.

Investors are essentially shrugging off the Middle East conflict as a blip that will be resolved relatively quickly, they said. “The stock market isn’t trying to price what’s happening today,” said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank. “The stock market is always trying to price what the world is going to look like six to 12 months from now.”

The S&P 500, a U.S. Stock index, fell about 8% in the initial weeks of the Iran war, from the start of the conflict on Feb. 28 to a recent low on March 30. But stocks have rebounded since then, erasing all losses since the beginning of the war. The S&P 500 closed at an all-time high on Thursday — about 11% higher than its nadir at the end of March.