Stocks Slide as Iran War Escalates — Two Catalysts Could Keep the Rally Alive
Wall Street opened the week in the red as fighting between the United States and Iran flared up again, sending oil prices sharply higher and dragging tech and semiconductor stocks lower. As of midday Monday, the S&P 500 was down about 0.7%, the Nasdaq Composite had fallen roughly 1.4%, and the Dow Jones Industrial Average was holding closer to flat, cushioned by gains in energy names.
What’s driving the selloff
President Trump said over the weekend that the U.S. is reinstating a blockade on Iranian shipping through the Strait of Hormuz, and Iran responded with fresh strikes against U.S. allies including Kuwait, Jordan, and Qatar. Brent crude jumped as much as 5% to near $79-82 a barrel on the news, reviving fears that a sustained oil shock could feed back into inflation just as the Federal Reserve weighs its next move on interest rates.
Tech and chip stocks took the brunt of the damage. South Korea’s SK Hynix, which debuted on the Nasdaq just last Friday, tumbled sharply as investors booked profits and reassessed AI-chip valuations, dragging down sentiment across the semiconductor space even as Taiwan Semiconductor reported blockbuster June sales. Energy stocks were the notable bright spot, benefiting directly from the spike in crude prices.
Despite the geopolitical overhang, two forces are giving bulls a reason to stick around: a strong start to earnings season and a wave of upgraded price targets for the S&P 500.
Catalyst 1: Q2 earnings season kicks off with a strong forecast
Second-quarter earnings season begins in earnest this week, with JPMorgan Chase, Goldman Sachs, Citigroup, Wells Fargo, and Bank of America all reporting results starting Tuesday. FactSet data shows analysts expect S&P 500 companies to post year-over-year earnings growth of roughly 23-24%, which would mark the strongest pace since 2021.
Strategists have repeatedly pointed out that this year’s rally has been earnings-led rather than valuation-led — meaning gains have come from actual profit growth rather than investors simply paying more for the same earnings. If bank results this week confirm that trend, it could help offset some of the risk-off pressure coming from the Middle East.
Catalyst 2: Wall Street keeps raising its S&P 500 targets
Even with the geopolitical noise, several major banks have lifted their year-end S&P 500 targets in recent weeks, largely on the back of stronger earnings estimates and continued AI-related capital spending:
- Citigroup: raised to 8,100 from 7,700
- Goldman Sachs: raised to 8,000 from 7,600, with 2026 EPS estimates of $340
- Yardeni Research: raised to 8,250 from 7,700, among the most bullish calls on the Street
- Bank of America remains the outlier, holding a more cautious 7,100 target and citing valuation risk
The split highlights the tension currently facing investors: strong, earnings-led fundamentals on one side, and stretched valuations plus geopolitical risk on the other. For sector-specific context on companies at the center of the AI capex story, see our fact sheets on Nvidia and Oracle’s latest earnings beat.
What to watch this week
Beyond the bank earnings, investors will be watching June’s Producer Price Index and Consumer Price Index releases for signs of whether the recent oil spike is starting to feed into broader inflation. A handful of Federal Reserve officials are also scheduled to speak this week, and markets will parse their comments closely for any hints on the path of interest rates given the renewed energy-price pressure.
Bottom line
Monday’s selloff is a reminder that the Iran conflict remains a live risk for markets, particularly through the channel of oil prices and inflation. But with bank earnings kicking off a season that’s expected to show the strongest profit growth since 2021, and multiple Wall Street strategists still raising their S&P 500 targets, the underlying bull case built on earnings — not just multiple expansion — remains intact for now. For ongoing coverage of individual companies driving this market, visit our Stock Fact Sheets hub.
For informational purposes only. This article does not constitute investment advice. Markets are volatile and subject to rapid change amid geopolitical events; always do your own research before making investment decisions.
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