Oil prices leapt on worries that war with Iran could clog the global flow of crude and make inflation even worse, while US stocks swung from sharp losses to a tiny gain.
Crude prices jumped more than 6%, which will likely mean higher prices soon at petrol pumps worldwide. That would hurt not only US households, whose spending makes up the bulk of the US economy, but also businesses with big fuel bills.
The S&P 500 fell as much as 1.2% at the start of trading, and cruise lines and airlines led the way lower. But US stocks quickly erased those losses, in part because past military conflicts haven't usually created sustained drops for the market, and the index finished the day with a gain of less than 0.1%.
The Dow Jones Industrial Average dipped 73 points, or 0.1%, and the Nasdaq composite rose 0.4%. Both also came back from steep early losses.
All told, the S&P 500 added 2.74 points to 6,881.62. The Dow Jones Industrial Average dipped 73.14 to 48,904.78, and the Nasdaq composite rose 80.65 to 22,748.86.
Bigger heating bills for America
Prices for natural gas remained higher, meanwhile, which could raise heating bills for the remainder of the winter, after a major supplier of liquefied natural gas to Europe said it would stop production because of the war. Gold climbed 1.2% as investors looked for safer things to own and as US officials tried to persuade the world that this war will not last forever.
"This is not Iraq," US Defense Secretary Pete Hegseth said on Monday. "This is not endless."
Typically, US Treasury bond yields also fall in the bond market when investors are feeling nervous. But yields instead climbed, in part because higher oil prices will put upward pressure on inflation, which is already worse than nearly everyone would like. That could tie the Federal Reserve's hands and keep it from cutting interest rates.
Lower interest rates can boost the economy and job market, but they also worsen inflation. Higher rates can do the opposite.
Past military conflicts in the Middle East have not caused long-term drops for markets. For this war to knock down US stocks in a significant and sustained way, the price of oil would perhaps need to jump above $US100 per barrel, analysts said.
Oil prices are still well below that level, even with Monday's jump. The price for a barrel of benchmark US crude rose 6.3% to settle at $US71.23. Brent crude, the international standard, climbed 6.7% to $US77.74 per barrel.
That helped the US stock market pare some of its steep, opening loss. Morgan Stanley [CJ1] said the S&P 500 has climbed an average of 2%, 6% and 8% in the one, six and 12 months following "geopolitical risk events" historically. That's going back to the Korean War, which began in 1950, and the 1956 Suez crisis.
Fear is moving markets
At this moment, though, fear is still running through markets.
Stocks of airlines were some of Monday's sharpest losers. Not only do higher oil prices threaten their already big fuel bills, the fighting in the Middle East also closed airports and left travellers stranded.
Stocks in the housing industry struggled as higher Treasury yields could translate into more expensive mortgage rates.
Helping the US stock market to bounce back from its early losses were oil companies, which benefited from the rising price of crude.
Big Tech stocks also helped support the market. Nvidia rose 2.9% and was the strongest single force pushing the S&P 500 higher.
