Global investors bracing for a knee-jerk selloff in stock markets

The Middle East situation takes centre-stage for markets, overshadowing US economic data releases this week, as investors assess the impact of Trump's sudden decision

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Investors are bracing for a knee-jerk selloff in stock markets after the weekend's US attack on Iran raised the specter of retaliation and higher oil prices.

The Middle East situation takes center stage for markets, overshadowing US economic data releases this week, as investors assess the impact of President Donald Trump's sudden decision to join Israel's military campaign against Iran on sentiment, inflation and interest rates.

Trump called the attack “a spectacular military success” in a televised address to the nation and said Iran's nuclear enrichment facilities had been “obliterated”. He said the US military could go after other targets in Iran if the country did not agree to peace.

“It’s hard to imagine stocks not reacting negatively and the question is how much. It will depend on Iranian reaction and whether oil prices spike,” said Steve Sosnick, chief market strategist at Interactive Brokers in Connecticut.

“Really what we're looking at is secondary order effects - the price of oil, market stability, price hikes through the economy. No globally important stock is directly affected by what happened tonight.” The S&P 500 is hovering just below its February highs but has rebounded sharply from its early April selloff, as tariff-related tensions have eased. However, the US benchmark index appears to be taking a breather at some 2.78 below its February closing high. The index has gone 27 trading sessions since coming within 58 of its February high but has not yet set a new record.

The Israel-Iran conflict has already sent oil prices sharply higher and led to caution in markets.