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Introduction
U.S. markets opened the week on a volatile note as geopolitical tensions flared over the weekend, but investors ultimately looked past Middle East risks to focus on broader economic signals and sector resilience. After a tentative start, major stock indexes staged a strong recovery despite news of Iran launching missiles at a U.S. base in Qatar—an attack that was reportedly intercepted with no casualties. The market shrugged off the potential impact on oil prices and instead found strength in tech, defense, and small-cap names.
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Stocks Rebound After Early Geopolitical Jitters
On Monday, President Donald Trump confirmed that the U.S. military struck three nuclear-related targets in Iran over the weekend. Following this, Iran retaliated by launching missiles at a U.S. base in Qatar, but the interception of the missiles prevented any injuries or damage, according to The Wall Street Journal.
Despite these events, the Dow Jones Industrial Average climbed 1%, while the S&P 500 and Nasdaq each gained 0.9%. The S&P 500 reclaimed its 6,000 level and held its 21-day moving average, signaling continued strength in the current power trend. The Nasdaq similarly remained above support levels.
Breadth Improves As Winners Outpace Losers
Market breadth improved significantly from Friday’s bearish tone. On the NYSE, advancing stocks outpaced decliners 2-to-1, while the Nasdaq showed a 5-to-4 ratio in favor of gainers. Volume was lighter than Friday’s options-expiration-boosted session, but momentum tilted clearly to the upside.
Ten of the S&P 500's 11 sectors posted gains, with energy being the lone laggard. Oil stocks dropped alongside crude prices despite escalating Middle East risks.
Inflation Watch: All Eyes on PCE Data
Investor focus is now turning toward economic fundamentals, especially inflation data due later this week. The Personal Consumption Expenditures (PCE) Index, the Fed’s preferred inflation gauge, is expected Friday. Projections show a 0.1% monthly rise for May and a 2.3% annual increase. Core inflation is also expected to rise 0.1% month-over-month and 2.6% year-over-year.
Meanwhile, Fed officials are beginning to hint at potential rate cuts. Vice Chair Michelle Bowman joined Governor Christopher Waller in suggesting that rate reductions could begin as early as July if inflation continues to ease.
Sector Highlights: Tesla, Defense, and Small Caps Shine
Among standout performers, Tesla (TSLA) led the charge in the auto sector, forming a base with a buy point of 367.71. Chinese EV makers Xpeng (XPEV) and BYD (BYDDF) also posted gains.
Defense stocks advanced, with Lockheed Martin (LMT) bouncing off its 50-day moving average and Karman (KRMN) rising above the 21-day line—reflecting investor rotation into military and aerospace names amid global tensions.
Small caps joined the rally, with the Russell 2000 index up 1.1%, signaling broader market participation.
Oil Sector Slides Despite Hormuz Threat
Despite Iranian lawmakers approving a proposal to close the Strait of Hormuz—a chokepoint for 20% of global oil shipments—crude prices fell sharply. West Texas Intermediate futures dropped nearly 9% to below $68 per barrel. This unexpected decline pressured energy names, including Chevron (CVX), ExxonMobil (XOM), and ConocoPhillips (COP), which lost between 1% and over 3%. Oil transport stocks such as Dorian LPG (LPG) and OneOK (OKE) also sank more than 2%.
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