U.S. stocks closed lower with the Dow dropping over 550 points as Middle East tensions rise again, putting pressure on the markets

Source: Global Markets Broadcast

On the early morning of May 5th, Eastern Time Zone 8, U.S. stocks closed lower on Monday, with the Dow Jones dropping more than 500 points. Renewed tensions in the Middle East fueled a continued rise in oil prices, dampening market risk appetite. Investors are awaiting the April nonfarm payrolls report to be released later this week.

The Dow fell 557.37 points, a drop of 1.13%, closing at 48,941.90; the Nasdaq dropped 46.64 points, down 0.19% to 25,067.80; the S&P 500 lost 29.37 points, a decrease of 0.41%, closing at 7,200.75.

U.S. stocks fell as the latest developments in the Middle East pushed oil prices higher, further raising concerns over instability in the region.

On Monday, the United Arab Emirates said it had intercepted multiple missiles launched from Iran. This marks the first activation of the UAE's missile alert system since the U.S. and Iran initiated a ceasefire last month.

Oil prices surged in response to the incident. U.S. West Texas Intermediate crude futures rose 3%, trading above $105 per barrel, while the international benchmark Brent crude futures climbed 5%, rising above $114 per barrel.

Earlier in the day, energy prices had already begun to rise due to conflicting reports regarding Iran attacking a U.S. warship and Iranian media claims that a vessel was driven away from the Strait of Hormuz.

According to reports, the Iranian Navy said it had prevented “U.S.-Zionist” warships from entering the area. Another report stated that two missiles hit a U.S. warship near Jask Island that ignored warnings. However, neither report has been independently verified.

U.S. Central Command subsequently posted on X, stating that "no U.S. Navy vessels were attacked."

In a Truth Social post on Sunday, U.S. President Donald Trump announced the so-called "Freedom Plan." He stated the plan meant that the U.S. would help “liberate” the merchant ships of countries not involved in the Middle Eastern conflict but stranded due to the closure of the Strait of Hormuz. Trump wrote that this initiative was scheduled to begin on Monday.

He said in his post: "I have informed my representatives to notify these countries that we will do our utmost to bring their ships and crews safely out of the strait. In any case, they said they would not return until the region becomes safe." However, Trump’s Truth Social post did not specify how this action would unfold.

Before Trump made this announcement, Iran said Sunday it had received a response from the U.S. to its latest peace negotiation proposal.

Previous reports had indicated that Iran sent an updated peace proposal last Friday through Pakistani intermediaries, boosting investor optimism about a possible resolution with the U.S. However, Trump subsequently stated late Friday that he was not satisfied with Tehran’s proposal, saying the country was offering a deal "only because their military is depleted."

Jay Hatfield, founder and CEO of Infrastructure Capital Advisors, stated: "We do not expect the war to be resolved quickly. We believe Iran will not suddenly come to its senses and give up its nuclear capabilities, so this will likely require force—and the market will not welcome that."

Even so, recent investor optimism over the Middle East situation and a strong first-quarter earnings season have driven the stock market to new highs. Even if the war is not resolved, Hatfield still expects the S&P 500 to reach 8,000 points by year-end.