By Johann M Cherian and Pranav Kashyap
March 9 (Reuters) – U.S. stock index futures tumbled more than 1% on Monday, as oil prices soared, exacerbating inflation fears as hostilities in the Middle East entered their tenth day.
Geopolitical tensions deepened after Iran named Mojtaba Khamenei, son of the late Ali Khamenei, as the supreme leader – a move seen as a clear signal that hardliners remain firmly in control in Tehran.
Crude prices shot up to just under $120 a barrel but eased as governments, including those part of the Group of Seven(G7) and Saudi Arabia, began discussions around measures to limit the jump in energy costs through increased oil supply.
Last week’s data that reflected a weakening jobs market, alongside a surge in broader economic activity, further pressured the market, as stagflation worries mounted.
“Stock markets have raced to catch up to all the news, but we are now looking at a vastly increased chance of a U.S. and global recession as inflation surges,” said Chris Beauchamp, chief market analyst at IG.
“While a coordinated release of oil reserves provides temporary relief, it is a limited response, and is dwarfed by the loss of oil output from the Hormuz closure and the shutdown of production in the region.”
Travel stocks that had borne the brunt of the selloff last week were also the hardest hit on Monday.
Alaska Air and United Airlines, along with cruise stocks such as Carnival Corp and Royal Caribbean Cruises, dropped 3% each in premarket trading.
Big banks, seen as the backbone of any economy, also took a hit with Morgan Stanley and Citigroup down over 2% each.
A prolonged period of higher oil prices could weigh on equities this year, Goldman Sachs said, warning that every one percentage point drop in economic growth could cut S&P 500 earnings by as much as 4%.
Higher energy prices lifted shares of Diamondback and APA that climbed over 2% each, while Occidental added 1.4%.
At 06:43 a.m. ET, Dow E-minis were down 561 points, or 1.18%, S&P 500 E-minis were down 70.75 points, or 1.05%. Nasdaq 100 E-minis were down 278.25 points, or 1.13%.
The Cboe Volatility Index, Wall Street’s fear gauge was at 32.14, its highest since April 2025.
Prices of traditional safe-havens such as precious metals also came under pressure as investors rushed to the U.S. dollar <=USD. Shares of miners such as Endeavour Silver and Barrick Mining lost about 2.7% each.
Bucking the trend, defense companies such as RTX climbed 1.5% and AeroVironment added 1.4%.
The spike in energy costs is complicating the work of global central banks, and for the Federal Reserve, inflation triggers are likely to become a greater focus.
Policymakers have so far voiced the need to wait and gauge the repercussions of the energy cost spike on the economy before deciding on the monetary policy. However, the yield on the two-year Treasury note rose and briefly touched its highest since late November, reflecting investors pricing in elevated interest rates.
Futures tracking the rate-sensitive Russell 2000 index dropped 2% and briefly marked a 10% drop from all-time highs. A 10% fall is commonly seen as correction territory for indexes.
Friday’s soft jobs report boosted expectations for a 25-basis-point interest rate cut in June. However, now traders have pushed those odds to potentially September or October, according to LSEG-compiled data.
Last week, the biggest declines were in the blue-chip Dow that logged its steepest weekly drop since early April 2025, while the Russell 2000 posted its biggest weekly loss since early August.
Markets face a week packed with data, including job opening numbers, personal consumption expenditures – the Fed’s preferred inflation gauge – and a second estimate of quarterly GDP.
(Reporting by Johann M Cherian, Pranav Kashyap and Shashwat Chauhan in Bengaluru; Editing by Mrigank Dhaniwala and Shinjini Ganguli)
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