Stocks Recover as Iran War Pushes Energy and Defense Stocks Higher

The S&P 500 Index ($SPX) (SPY) on Monday closed up +0.04%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.15%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.13%.  March E-mini S&P futures (ESH26) fell -0.01%, and March E-mini Nasdaq futures (NQH26) rose +0.08%.

Stock indexes settled mixed on Monday, with the Dow Jones Industrial Average falling to a 2-month low, and the S&P 500 and Nasdaq 100 recovering from 1.5-week lows. 

Stocks recovered from early losses on Monday on dip buying and after the Feb ISM manufacturing index expanded more than expected.  Also, the war in Iran sparked rallies in defense stocks and energy producers on Monday, lifting the broader market.

Stocks initially moved lower on Monday after the US and Israel launched joint military attacks on Iran.  President Trump said that combat operations could last for weeks until all objectives were completed.  President Trump has called for Iran’s leaders to capitulate, but Iran’s security chief said that it has no intention of negotiating with the US.

The war in Iran has prompted risk-off sentiment in asset markets and spurred safe-haven demand for precious metals, with gold prices climbing to 1-month highs.  Bond yields initially fell on news of a war with Iran amid safe-haven demand, but have since risen sharply, with the 10-year T-note yield up +11 bp to 4.05% amid concern that high oil prices will stoke faster inflation.

WTI crude oil soared more than +6% to an 8.25-month high on Monday as tanker traffic through the Strait of Hormuz, which runs along Iran's coast and handles a fifth of the world's oil, has largely halted after Iran attacked three oil tankers.  Iran pumps about 3.3 million bpd, or about 3% of global output, but it is strategically important given its location along the Strait of Hormuz.  Goldman Sachs estimates the real-time risk premium for crude oil at $18/bbl, corresponding to its estimate of the impact of a six-week full halt to tanker traffic in the Strait of Hormuz.

The US Feb ISM manufacturing index fell -0.2 to 52.4, stronger than expectations of 51.5.  The Feb ISM prices paid sub-index rose +11.5 to a 3.5-year high of 70.5, stronger than expectations of 60.0.

This week's market focus will be on US-Iran war news, corporate earnings, and economic news.  On Wednesday, the Feb ADP employment change is expected to increase by +40,000. Also, the Feb ISM services index is expected to slip by -0.3 to 53.5.  In addition, the Fed releases its Beige Book.  On Thursday, weekly initial unemployment claims are expected to increase by +3,000 to 215,000.  Also, Q4 nonfarm productivity is expected to be up +1.8%, and Q4 unit labor costs are expected to be up +2.0%.  On Friday, Feb nonfarm payrolls are expected to increase by +60,000, and the Feb unemployment rate is expected to remain unchanged at 4.3%.  Also, Feb average hourly earnings are expected to increase by +0.3% m/m and +3.7% y/y.  In addition, Feb retail sales are expected to fall -0.3% m/m and Feb retail sales ex-autos are expected to remain unchanged m/m.

Q4 earnings season is nearing its end, with more than 90% of the S&P 500 companies having reported earnings results.  Earnings have been a positive factor for stocks, with 73% of the 481 S&P 500 companies that have reported beating expectations.  According to Bloomberg Intelligence, S&P earnings growth is expected to climb by +8.4% in Q4, marking the tenth consecutive quarter of year-over-year growth.  Excluding the Magnificent Seven megacap technology stocks, Q4 earnings are expected to increase by +4.6%.

The markets are discounting a 2% chance for a -25 bp rate cut at the next policy meeting on March 17-18.

Overseas stock markets settled mixed on Monday.  The Euro Stoxx 50 fell to a 1.5-week low and closed down -2.47%.  China’s Shanghai Composite climbed to a 1.5-month high and closed up +0.47%.  Japan’s Nikkei Stock 225 closed down -1.35%.

Interest Rates

June 10-year T-notes (ZNM6) on Monday closed down by -23.5 ticks.  The 10-year T-note yield rose +10.6 bp to 4.046%.  June T-notes fell from a contract high and turned lower on Monday, and the 10-year T-note yield rebounded from an 11.75-month low of 3.922% and moved sharply higher.  T-notes initially rallied on Monday on increased safe-haven demand as stock index futures sold off after the US attacked Iran.  However, T-notes gave up their gains and turned lower after WTI crude oil soared to an 8.25-month high, which raised inflation expectations, as the 10-year breakeven inflation rate rose to a 1-week high of 2.300%.  Losses in T-notes accelerated on Monday after the Feb ISM prices paid sub-index jumped to a 3.5-year high, signaling sticky price pressures.

European government bond yields moved higher on Monday.  The 10-year German bund yield rose +6.9 bp to 2.712%.  The 10-year UK gilt yield climbed to a 1-week high of 4.383% and finished up +14.1 bp to 4.374%.

German Jan retail sales fell -0.9% m/m, weaker than expectations of unchanged m/m and the biggest decline in 19 months.

Swaps are discounting a 1% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.

US Stock Movers

Defense stocks moved higher on Monday as the war in Iran boosts their earnings prospects.  Northrop Grumman (NOC) closed up more th +5%, and RTX Corp (RTX) closed up more than +4%.  Also, Lockheed Martin (LMT) and L3Harris Technologies (LHX) closed up more than +3%.  In addition, Huntington Ingalls Industries (HII) and General Dynamics (GD) closed up more than +2%.

Energy producers and energy service providers rallied on Monday as WTI crude (CLJ26) rose more than +6% to an 8.25-month high.  Marathon Petroleum (MPC) and Valero Energy (VLO) closed up more than +5%, and APA Corp (APA) and ConocoPhillips (COP) closed up more than +4%.  Also, Devon Energy (DVN) and Phillips 66 (PSX) closed up more than +3%, and Diamondback Energy (FANG) and Occidental Petroleum (OXY) closed up more than +2%.  In addition, Chevron (CVX) and Exxon Mobil (XOM) closed up more than +1%. 

Cryptocurrency-exposed stocks rallied on Monday after Bitcoin (^BTCUSD) rose more than +5%.  Strategy (MSTR) closed up more than +6% to lead gainers in the Nasdaq 100.  Also, MARA Holdings (MARA) closed up more than +6%, and Galaxy Digital Holdings (GLXY) and Coinbase Global (COIN) closed up more than +5%.  In addition, Riot Platforms (RIOT) closed up +0.86%.

Chipmakers and AI-infrastructure stocks sold off on Monday, a negative factor for the overall market.  Seagate Technology Holdings Plc (STX) closed down more than -6% to lead losers in the Nasdaq 100, and Western Digital (WDC) closed down more than -3%.  Also, ASML Holding NV (ASML) and ARM Holdings Plc (ARM) closed down more than -2%, and Lam Research (LRCX), Marvell Technology (MRVL), NXP Semiconductors NV (NXPI), Advanced Micro Devices (AMD), Qualcomm (QCOM), and Texas Instruments (TXN) closed down more than -1%.

Airline stocks were under pressure Monday as crude oil prices surged by more than +6% to an 8.25-month high, which will boost jet fuel prices and potentially cut into airlines’ profits.  American Airlines Group (AAL) closed down more than -4%, and United Airlines Holdings (UAL) closed down more than -3%.  Also, Delta Air Lines (DAL) and Southwest Airlines (LUV) closed down more than -2%.

Cruise line operators slid on Monday, led by a -10% decline in Norwegian Cruise Line Holdings (NCLH) after forecasting full-year EPS of $2.38, weaker than the consensus of $2.59.  Also, Carnival (CCL) closed down more than -6%, Viking Holdings Ltd (VIK) closed down more than -4%, and Royal Caribbean Cruises Ltd (RCL) closed down more than -2%. 

Homebuilders retreated on Monday after the 10-year T-note yield rose more than +11 bp, which will push mortgage rates higher and may curb home sales prospects.  KB Home (KBH), Lennar (LEN), and DR Horton (DHI) closed down more than -3%.  Also, PulteGroup (PHM) closed down more than 2%, and Toll Brothers (TOL) closed down more than -1%. 

UniQure (QURE) closed down more than -32% after US regulators said the company should conduct a pivotal study before getting approval for its gene therapy for Huntington’s disease. 

AES Corp (AES) closed down more than -17% to lead losers in the S&P 500 after agreeing to be acquired by a consortium led by Global Infrastructure Partners and EQT for $15 per share in cash. 

Elevance Health (ELV) closed down more than -7% after it said the US government plans to suspend enrollment in its Medicare Advantage Prescription Drug plans as of March 31, unless compliance issues are resolved.

Coherent (COHR) closed up more than +16% and Lumentum Holdings (LITE) closed up more than +12% after Nvidia said it is investing $2 billion in each company. 

RadNet (RDNT) closed up more than +8% after reporting Q4 revenue of $547.7 million, better than the consensus of $515.4 million. 

EchoStar Corp (SATS) closed up more than +3% after reporting Q4 revenue of $3.80 billion, above the consensus of $3.77 billion. 

Earnings Reports(3/3/2026)

AutoZone Inc (AZO), Best Buy Co Inc (BBY), CrowdStrike Holdings Inc (CRWD), Gitlab Inc (GTLB), On Holding AG (ONON), Ross Stores Inc (ROST), Thor Industries Inc (THO), Versant Media Group Inc (VSNT), Viking Holdings Ltd (VIK).