Last Friday, equity indices closed with another sharp decline. The S&P 500 fell by 1.51%, while the Nasdaq 100 dropped by 2.01%. The Dow Jones Industrial Average lost 0.96%.

The sell-off in equities, gold, and bonds intensified today against the backdrop of tougher rhetoric between the US and Iran and signals of a potential escalation in a conflict now entering its fourth week. Asian indices fell by 3.7%, declining for a third consecutive day, while bonds also continued to be sold off as the protracted war threatens to spark inflation, slow growth, and push central banks to consider raising interest rates.

Rhetoric escalated over the weekend: US President Donald Trump issued Iran a 48-hour ultimatum demanding the Strait of Hormuz — crucial for oil and gas supplies from the Middle East — be reopened, otherwise the US would destroy Iranian power plants. The Islamic Republic replied that any such attack would force it to close the strait indefinitely and strike the energy infrastructure of the US and Israel in the region.

The stock market's reaction to all this was not long in coming. Oil rose. Brent crude is currently up 0.9% to just above $113 per barrel. It is worth noting that Brent and WTI prices have risen by more than 70% so far this year.

According to Federated Hermes, markets are definitely beginning to show greater concern about developments in the Middle East and that caution, rather than panic, is warranted. The key question is duration and the longer the situation drags on, the worse it becomes, the investment manager added.

Last week, equities and bonds fell in tandem amid rising inflation concerns and slowing economic growth. This is also putting pressure on policymakers: Federal Reserve Chair Jerome Powell said the central bank needs to see more progress in the fight against inflation before cutting interest rates again. On Friday, the sell-off in the US market accelerated as traders began to price in the possibility that the Fed could raise rates this year, given that oil prices threaten to trigger a new inflation shock.

Elsewhere, silver plunged by more than 9%, and Bitcoin traded below $68,000. Gold posted its longest losing streak since October 2023 as market sentiment remains unsettled. The risk of higher rates is forcing gold selling.

As for the technical picture of the S&P 500, the main task for buyers today is to overcome the nearest resistance level of $6,457. This would help the index gain upside momentum and could open the pave for a climb to a new level at $6,473. Equally a priority for bulls will be control of $6,490, which would strengthen buyers' positions. In the event of a downward move amid waning risk appetite, buyers simply must assert themselves around $6,441. A break below this level would quickly push the instrument back to $6,428 and open the way to $6,414.