NASDAQ, S&P 500 drop amid mounting US-Iran tensions

The S&P 500 and Nasdaq Composite retreated from record highs on Monday following a strong Wall Street rally last week, as renewed tensions between the United States and Iran threatened to collapse the ceasefire and weighed on investor sentiment.

Iran had reopened the Strait of Hormuz on Friday, sparking a broad market surge that saw both the S&P 500 and Nasdaq Composite record all-time highs for the third consecutive session, marking their largest weekly gains since May.

However, Tehran re-closed the waterway after the United States announced the seizure of an Iranian cargo ship that attempted to break the blockade. Furthermore, the Iranian Foreign Ministry stated on Monday that there are no plans to hold a second round of negotiations with Washington.

Lizzie Galbraith, a senior political economist at abrdn, stated: "One interpretation of this diplomatic volatility is a power vacuum within the Iranian government. It may also be that both sides are seeking to strengthen their negotiating hands ahead of the next round of talks, with the underlying desire for a deal remaining intact."

She added: "Progress toward a permanent ceasefire and the reopening of the Strait of Hormuz continues to follow a pattern of two steps forward and one step back."

Oil prices rose by 5% on Monday, supporting the energy sector within the S&P 500, which climbed approximately 0.9%.

By 10:05 AM ET, the Dow Jones Industrial Average rose by 11.67 points, or 0.01%, to 49,459.10 points, while the S&P 500 declined by 7.29 points, or 0.10%, to 7,118.77 points, and the Nasdaq Composite fell by 59.97 points, or 0.24%, to 24,408.51 points.

Gains in Goldman Sachs and JPMorgan Chase shares helped support the Dow Jones.

In contrast, consumer discretionary and communication services sectors placed the most pressure on the S&P 500, with Amazon shares falling about 1.5% and Meta Platforms shares dropping by a similar percentage.

Technology stocks saw a lackluster performance, with losses partially offset by a 1.4% rise in Apple shares.

Marvell Technology shares rose 4.4% following a report that Alphabet's Google is in talks with the company to develop two new chips to run artificial intelligence models more efficiently.

The Volatility Index (VIX), known as Wall Street's "fear gauge," rose after declining for the previous eight sessions, gaining 1.50 points to 18.98, its highest level in a week.

The Russell 2000 index for small-cap companies remained relatively stable after reaching a record high on Friday.

Market focus on corporate earnings and war impact

Eyes are expected to turn toward quarterly financial results as investors seek to assess the impact of the war with Iran on corporate profits and the broader economy, with results from companies like Lockheed Martin and IBM expected later this week.

Tesla is scheduled to kick off the "Magnificent Seven" earnings season on Wednesday.

LSEG data indicates that first-quarter earnings for S&P 500 companies are expected to grow by 14.4%, compared to 13.7% a year ago.

Other market movements

In other moves, QXO shares fell 7.2% after entering a $17 billion deal to acquire TopBuild, whose shares jumped 16.8%.

Declining stocks outnumbered advancing ones by a 1.05-to-1 ratio on the New York Stock Exchange and by 1.13-to-1 on the Nasdaq.

The S&P 500 recorded 28 new 52-week highs with no new lows, while the Nasdaq Composite recorded 103 new highs and 24 new lows.