Dow falls by 700 points, S&P 500 and Nasdaq sink as oil surges amid war worries

The US dollar index (DX-Y.NYB) is rapidly nearing three-month highs, amid the biggest two-day surge since late July. The dollar pain trade is already making its rounds through global stock markets and the metals complex.

Though gold (GC=F) clearly benefited from haven flows Monday as investors priced in the Iran conflict, it’s down 3.7% this morning — the most since the giant $600 slide on Jan. 30.

Platinum (PL=F) is down 10%, silver (SI=F) is off 6%, and palladium (PA=F) 7%.

Meanwhile, energy commodities are soaring, with heating oil up (HO=F) nearly 9%, crude oil (CL=F, BZ=F) up 7%-8%, natural gas (NG=F) up 6%, and RBOB gasoline futures (RB=F) up around 4%.

While the dollar pain trade is clearly starting to flex, it intensifies with the dollar index north of 100. Given this ceiling has held since last May, there’s a decent chance of some relief at that level, should the rally continue.

As the Iran conflict runs into its fourth day, retaliatory strikes from what remains of the regime are increasingly crossing red lines not passed in previous conflicts.

Iran is now targeting energy infrastructure throughout the Middle East, including strikes on tankers that have effectively closed the Strait of Hormuz. The moves will have a “big psychological impact on the markets” and signal that this conflict “may be different” than previous flare-ups where tensions and prices quickly settled, analysts said.

As I report:

Read more here.

The engine of the AI trade — chip stocks — is getting sold hard.

Of concern, the broader industry index (SOXX) opened just under its 50-day moving average — a key technical level that hasn’t been breached since December.

To be fair, it’s the 200-day average that matters most, and that’s still 15% to the downside around the 280 level.

After the SOXX first rose above the 200-day last May following the “Liberation Day” washout, dips below the 50-day have been short-lived — with the 100-day ultimately holding in the most extreme case (currently about 315).

A quick scan of our semiconductor heat map, which shows how far each stock is from its 52-week high, reveals that nearly half of these names are off by 20% or more.

The US stock market slid deeply into the red on Tuesday after the US and Israel began a new barrage of attacks against Iran, and a widening conflict turned up nerves about a drawn-out regional war.

The Nasdaq Composite (^IXIC) led the retreat, losing roughly 1.9%, while the S&P 500 (^GSPC) and the Dow Jones Industrial Average (^DJI) saw slightly leaner drops of 1.6% and 1.7%, respectively, as oil prices rallied further on concerns about blocked supply and, increasingly, threats to production.

Crude prices (BZ=F, CL=F) began to climb again as key supply routes remain blocked and Iranian attacks widened out to include Middle East energy infrastructure, gaining over 6% as inflation worries grew. Meanwhile, gold (GC=F) prices turned lower after a four-day rally, slipping 2%.

In the corporate world, shares in Target (TGT) rose in premarket after the retail giant posted lackluster holiday and full-year sales that met Wall Street estimates.

It’s a sea of red in foreign stock markets and foreign exchange-land this morning, as my colleague Jake Conley has been writing. Investors pricing in higher energy costs, lower risk appetite, and a more expensive dollar are unwinding many of the most profitable trades of the last year.

After a decent drubbing on Friday and being closed for a holiday Monday, the iShares MSCI South Korea ETF (EWY) is sinking 12% this morning — the most since 2020. (It has still tripled from the April 2025 post-Liberation Day lows.)

Korea is heavily leveraged to the chip trade, which is also getting repriced (to the downside) this morning.

Micron (MU), Sandisk (SNDK), and Lumentime (LITE) are off 6%, while Western Digital (WDC), ASML (ASML), and Taiwan Semi (TSM) are down 5%.

Having said that, the Philly semiconductor index (SOX) is set to open about 8% from its record high, just above the 50-day moving average at the 336 level. That’s one to watch as the day develops.

Global currencies swung widely this morning as foreign exchange traders priced in the effects of what has become an increasingly broad supply-side inflationary shock.

The dollar is gaining not only on an index basis but against a basket of other currencies as the market assesses that the US is less exposed to direct physical supply disruption, though not immune.

Meanwhile, Europe’s currencies are taking the brunt of the blow in the foreign exchange market. Europe remains heavily reliant on imported liquefied natural gas (LNG), including significant flows from Qatar, and the country’s production stoppage of LNG has sent European Title Transfer Facility (TTF) gas prices (TTF=F) soaring by more than 85% over the past five sessions.

Unlike a typical geopolitical shock that drives flows into government bonds, this episode has seen yields rise as traders price in higher inflation and fewer central bank rate cuts.

Emerging market currencies tied to energy imports are also under pressure. Egypt’s pound breached a key sympathy level of 50 per dollar as investors brace for prolonged regional instability, and predictions of a South African interest rate hike later this month are surging after predictions as recently as Friday that South Africa’s central bank would cut rates at its upcoming March meeting.

Best Buy (BBY) stock jumped as much as 12% in premarket trading despite the retailer reporting a surprise sales slump in its key holiday shopping season.

Same-store sales declined 0.8% in the fourth quarter, the company said Tuesday. Wall Street had hoped for a 0.2% increase after two straight quarters of positive growth.

“Our data sources show our overall market share was at least flat, pointing to slightly softer customer demand for our industry during the holiday quarter,” Best Buy CEO Corie Barry said in the release.

Best Buy expects first quarter same-store sales to return to growth, rising 1%.

Revenue for the fourth quarter totaled $13.81 billion, less than the $13.88 billion Wall Street had expected, per Bloomberg consensus data. Adjusted earnings per share came in higher at $2.61, more than the $2.46 the Street predicted. Best Buy stock is down more than 30% in the past year.

For the full year, revenue came in at $41.69 billion, just below the $41.76 billion Wall Street predicted. Adjusted earnings per share came in at $6.43, $0.12 above Wall Street’s estimates for $6.31.

For the year, same-store sales grew 0.5%, less than the 0.9% increase Wall Street was looking for.

There will be a lot of pomp and circumstance for Target (TGT) today. At the same time as the retailer puts out its earnings release, it’s holding its annual investor day in its backyard of Minneapolis.

I think the company — now led by a new CEO, Michael Fiddelke, and an almost entirely new leadership team — will hype its store investment plans and say that 2025 results will be a low-water mark.

Execs will probably use today’s earnings beat and call out of positive sales in February to help their pitch to Wall Street (and investors more broadly, who have been burned badly by the stock in the past five years).

All of that said, I am not taking the bait, and you shouldn’t take it either. Target should stay in the penalty box and is a “prove it” stock. That means until it starts stacking positive quarters, you just don’t buy the stock and continue to favor Walmart (WMT) or Costco (COST) on pullbacks.

Here’s what I didn’t like from Target’s quarter to underscore my point:

As I mentioned in a prior post, keeping market history in mind during war situations is important.

While the spike in oil (BZ=F, CL=F) prices looks painful (and it is), we haven’t seen a worst-case scenario.

That was called out in this chart Deutsche Bank:

You may be wondering why we are seeing Ford (F) and General Motors (GM) sell-off more than the broader market this week. Sure, there is the thinking that with stocks down and with us at war, people put off buying the more expensive cars and trucks each automaker continues to hawk.

But keep this mind. Both automakers have made a hard pivot away from electric vehicles and passenger cars, each being ideal in an environment of sustained higher gas prices (which we may be looking at). Ford especially is really playing up its pickup truck bonafides.

Another surge in oil prices (CL=F, BZ=F) isn’t helping market sentiment this morning.

But remember in this backdrop, markets will tend to take their initial cues from the leaders running point on the war (Trump, Hegseth, and so on)

Helpful assessment of this from Mizuho today: