The S&P 500 and the Nasdaq retreated from record highs as oil prices jumped amid signs that the Middle East conflict could intensify again.
The S&P 500 lost 0.4% to close at 7,200.8, while the Nasdaq fell 0.2% to 25,067.8. The Dow Jones Industrial Average ended 1.1% lower at 48,941.9. Barring energy, all sectors were in the red, led by materials.
Brent crude jumped 5.3% to $113.87 per barrel, while West Texas Intermediate crude rose 3.1% to $105.12.
The US military destroyed six Iranian boats in the Strait of Hormuz on Monday after Tehran attacked US Navy ships and commercial vessels, CNN reported, citing Admiral Brad Cooper, the head of the US Central Command.
A senior Iranian military official disputed that claim, Fox News reported, citing Iranian media. US President Donald Trump told news agency that Iran will be "blown off the face of the Earth" if they attack US vessels that support Trump's initiative to escort commercial ships through the Strait of Hormuz
Tehran fired missiles and drones at the United Arab Emirates, the UAE's Defense Ministry said in a post on X earlier in the day.
Two US-flagged vessels passed through the strait, the Central Command said Monday, denying claims from Iran that a US ship had been hit. Iran's Islamic Revolutionary Guard Corps said no commercial vessels or oil tankers had transited the narrow waterway, CNN reported.
Meanwhile, the Israeli military reportedly issued an evacuation order for 10 villages in southern Lebanon.
The broader conflict paused following two separate ceasefires; one between Washington and Tehran and the other involving Israel and Lebanon. However, a framework for a permanent truce is yet to be reached.
The cumulative supply disruption due to the conflict has now reached an estimated 600 million barrels by early May, Wells Fargo Investment Institute said in a note.
"Absent a reopening of the strait within the next several weeks, the global oil market, in our view, is likely to enter a period of explicit demand rationing within the current quarter," Wells Fargo Investment Institute Chief Investment Officer Darrell Cronk said. "Rationing on the order of four million to five million barrels per day would be required within weeks to rebalance the system, with a typical 30-day lag before flow disruptions fully translate into end-market shortages."
US Treasury yields were higher, with the 10-year rate up 6.3 basis points at 4.44% and the two-year rate rising 6.6 basis points to 3.96%.
"Notwithstanding the recent powerful rallies in stocks, challenges remain to finding resolution for the conflict and in our view persist as a potential negative overhang to market performance with news flow from the Middle East, the price of oil, and supply chain disruptions adding to inflation risks near term," Oppenheimer Asset Management Chief Investment Strategist John Stoltzfus said in a report. "That said, stock prices in the US continue to reflect in our view an appreciation for the fundamentals that matter most for revenue and profit growth."
On the monetary policy front, New York Fed President John Williams said Monday that the Middle East conflict could keep inflation elevated for some time.
Switching to quarterly results, S&P 500 companies' earnings and revenue growth accelerated compared with figures from a week ago, Oppenheimer Asset Management said Monday.
Advanced Micro Devices (AMD), Disney (DIS), Uber Technologies (UBER), Shopify (SHOP), Pfizer (PFE) and McDonald's (MCD) are among major companies that are scheduled to release quarterly financials this week.
Traders will be looking ahead to fresh labor market data later this week, beginning with the Job Openings and Labor Turnover Survey for March on Tuesday, followed by the ADP employment report for April on Wednesday. The Challenger Job Cut report and the government's nonfarm payrolls data, both for last month, are scheduled to be released on Thursday and Friday, respectively.
"Focus shifts from Big Tech to consumer-facing earnings and macro validation," Saxo Bank said in a report. "US earnings from Disney, Airbnb (ABNB), and McDonald's will test demand resilience, while the US jobs report will determine whether strong growth can sustain current equity levels."
In company-specific news, Tyson Foods' (TSN) shares jumped 8%, the best performer on the S&P 500. The meat producer's fiscal second-quarter results surpassed Wall Street's expectations, lifted by price and volume gains in the chicken and prepared foods segments.
Norwegian Cruise Line (NCLH) lowered its full-year earnings outlook on Monday amid higher fuel costs and weak consumer demand due to the Middle East conflict, while the cruise operator's first-quarter revenue fell short of market estimates. The stock fell 8.6%, among the worst performers on the S&P 500.
EBay (EBAY) shares advanced 5.1%, among the best performers on the S&P 500, after video game retailer GameStop (GME) proposed to acquire the e-commerce company in a cash-and-stock deal worth about $55.5 billion. Shares of GME slumped 10%.
Gold fell 2.6% to $4,524.40 per troy ounce, while silver declined 4% to $73.42 per ounce.