Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 20, 2026.
Brendan McDermid | Reuters
Major U.S. stock indexes tumbled on Thursday as investors began to price in the consequences of a renewed and prolonged conflict in the Middle East.
While the U.S. has conducted strikes against Iran 12 nights in a row — sending both oil prices and Treasury yields higher — domestic equities had mostly brushed off the idea of the war between the two countries heating up again, staying flat while oil jumped.
That changed on Thursday, though, when Brent Crude futures jumped above $100 per barrel and the 10-year Treasury yield broke through 4.7%, hitting its highest level since January 2025, after reports of attacks against tankers off the coast of Saudi Arabia. The S&P 500 headed for its biggest decline in a month.
Oil prices and S&P 500
FactSet
“These problems became too big to ignore,” said Steve Sosnick, chief strategist at Interactive Brokers, about the move in stocks on Thursday. “It’s too hard to ignore $100 oil. It’s too hard to ignore 10-year rates that are above 4.70%. It’s too hard for the stock market to ignore 30-year rates that are solidly above 5%.”
Western Texas Intermediate Crude futures jumped 6% to $92 per barrel, up more than 28% from lows below $70 per barrel they hit earlier this month. The S&P 500 is now down about 2% since the consecutive evening strikes by the U.S. began on July 12.
In March, after the U.S-Iran war began, the S&P 500 fell more than 7.5% at its low point as oil surged nearly 70% and investors worried about stagflation, where higher energy prices would reignite inflation while elevated costs at the gas pump would weigh on consumer spending.
A series of de-escalation announcements between the two countries and a reignited faith in the artificial intelligence trade led the S&P to ferociously rebound in April and May, even as hostilities at various times continued.
Betting on Trump’s off-ramp
The big factor, however, was a bet that President Donald Trump would find an off-ramp to end the war rather than face the economic and political consequences of a prolonged conflict.
“We have consistently argued since 2nd half of March to use the equity weakness brought on by the Iran conflict to buy into, as the off-ramp and the eventual deal were likely, in our view,” wrote JPMorgan equity strategists in a note earlier this month. “The risks of renewed flareups remain, but we believe one should keep using any dips on the back of adverse geopolitical headlines in order to add.”
S&P 500 since Feb. 27, 2026
Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, now thinks traders need to reconsider the economic fears they had in March.
Investors should be worried about both higher inflation and the impact higher gas prices may have on consumers, she said. Samana added the reignited conflict is a reason to prepare for a larger drawdown in equities.
Sosnick said that stocks on Thursday were also likely pricing in a tighter borrowing environment for companies. Chances for a rate hike by the Federal Reserve next week according to CME’S FedWatch tool are up to almost 38%, while odds for a hike at the central bank’s September meeting are at more than 80%.
A week ago, those odds were priced at about 12% and 53%, respectively
Back in March, many analysts were surprised that the stock market didn’t react more to the conflict initially, and concluded that the U.S. economy was in better shape than in the past to handle energy shocks. That’s a bet that Michael Tanney, CEO at investment advisory firm Pereon Wealth, is taking again.
“In the short term, the elevated spike is more meaningful to the headlines than client portfolios,” Tanney said. “If we have a sustained price above $120, that’s the breaking point where you’ll see serious trickle down effects.”
— CNBC’s Deena Zaidi, Tanaya Macheel, Ananya Chetia contributed reporting