The U.S. strikes Iran. What it means for the markets

Global markets are beginning the week on edge after President Donald Trump ordered military strikes on three Iranian nuclear sites over the weekend, escalating tensions in an already fraught region.

While the Trump administration framed the move as a push toward negotiations, it’s not clear how bombing deep into sovereign territory makes that outcome more likely. Instead, the strikes drew immediate warnings of retaliation and talk from Iran’s parliament about closing the Strait of Hormuz — a move that could choke off a fifth of the world’s oil supply.

Meanwhile, domestic historians and analysts are questioning the legality of Trump’s actions under both international law and the U.S. Constitution, which explicitly grants Congress — not the president — the authority to declare war. With no clear congressional authorization and little transparency around the administration’s rationale, critics warn the strike could mark a dangerous expansion of executive war powers.

For now, let’s look at possible short-term effects across major markets and the economy.

U.S. stocks

Stocks didn't move much at Monday's market open, with investors appearing to barely price in the risk of further escalation. The S&P 500, the Dow Jones Industrial Average, and the tech-heavy Nasdaq were all up slightly shortly after markets open.

The initial moves suggest investors are bracing for volatility but hardly panicking. In a memo released early Monday, Wedbush Securities analysts described the outlook this way: "We believe tech stocks should shake... jitters off with cyber security stocks in particular set to be front and center this week as investors anticipate some cyber attacks from Iran could be on the horizon as retaliation."

Oil prices

Any real disruption to oil flows through the Strait of Hormuz could drive prices toward $120 per barrel, analysts at JPMorgan warned recently. For now, the Strait remains open, and over the weekend, oil prices rose only about 1.5%, heading into Monday. Oil prices actually fell slightly on Monday morning.

Tanker traffic is reportedly moving with caution, and officials across the region are watching closely. With trust eroding and diplomacy sidelined, investors are left parsing intentions from missile strikes, which is hardly the ideal foundation for price discovery.

Trump took to social media Monday morning with a warning over oil prices whose target wasn't clear. "EVERYONE, KEEP OIL PRICES DOWN," Trump said on Truth Social. "I’M WATCHING! YOU’RE PLAYING RIGHT INTO THE HANDS OF THE ENEMY. DON’T DO IT!"

Inflation and the Fed

Rising oil prices could inject fresh inflation into the U.S. economy just as the Federal Reserve debates whether and when to cut interest rates, with the Fed’s most recent reasoning (released just last week) suggesting two possible rate cuts in the second half of 2025.

If sustained, a spike in energy prices could strengthen the case for staying on hold, or even for tightening measures. At the same time, some economists argue such sustained price moves could just as easily prompt the Fed to cut rates sooner than it otherwise might.

In other words, all the "macro uncertainty" that's been swirling around markets just got a bit more uncertain.