NEW YORK — The S&P 500 (^GSPC) extended losses into early March 2026 trading, pressured by escalating geopolitical tensions in the Middle East following U.S. and Israeli military strikes on Iran, which sent oil prices sharply higher and prompted a flight to safe-haven assets.

The benchmark index closed at 6,878.88 on Feb. 27, down 29.98 points or 0.43%, capping a volatile week that saw broader market retreats amid renewed inflation concerns from surging energy costs. On March 2, futures indicated further downside, with S&P 500 contracts sliding around 1% pre-market before opening lower, trading near 6,855-6,856 levels in early sessions with intraday ranges dipping to approximately 6,796 before partial recovery attempts.

The tech sector led record gains in the S&P 500 index. Pictured: a man with umbrella walks past the New York Stock Exchange.
S&P 500 index

The pullback reflects a classic risk-off environment triggered by weekend military actions. U.S. and Israeli forces targeted Iranian sites in what has been described as "Operation Epic Fury," prompting fears of prolonged conflict, potential disruptions in the Strait of Hormuz — through which about one-fifth of global oil flows — and retaliatory measures. Brent crude surged as much as 8-13% at peaks, trading near $79-$82 per barrel early in the week, while West Texas Intermediate climbed toward $72-$73, marking multi-month highs and amplifying worries about sticky inflation.

Gold futures rallied over 3%, surpassing recent levels as investors sought protection, while the U.S. dollar strengthened against major currencies. The VIX, Wall Street's fear gauge, elevated toward 20, signaling heightened volatility as traders braced for developments.

"The combination of geopolitical escalation and an oil shock is forcing a rapid repricing of risk," one market analyst commented in a Monday note. "Higher energy prices threaten to delay any Federal Reserve easing cycle, putting pressure on valuations across equities, especially in growth-sensitive sectors."

The S&P 500 has shown resilience earlier in 2026, with year-to-date performance modestly positive in some calculations around 0.5% to 1% despite February's softness. The index ended the prior month lower overall, influenced by softer sentiment in AI and technology names amid broader rotation. However, the latest catalyst has accelerated the defensive shift, with energy and select industrial names providing relative outperformance while consumer discretionary, tech-heavy constituents and airlines faced headwinds from elevated fuel costs.

Broader indices mirrored the caution. The Dow Jones Industrial Average futures dropped over 500 points at one point, while the Nasdaq Composite — already under pressure from prior sessions — saw amplified declines due to its growth orientation. European and Asian markets opened sharply lower, with some benchmarks down 1-2% as the conflict's global implications rippled outward.

Analysts noted that persistent oil elevation could complicate the economic soft-landing narrative that buoyed stocks through much of the cycle. Recent Producer Price Index data had already introduced hotter-than-expected inflation readings, and the energy spike risks reinforcing those trends ahead of key labor market reports and corporate earnings.

Despite the near-term turbulence, longer-term optimism lingers for some observers. The S&P 500 remains above key technical supports, including its upward-sloping 10-month exponential moving average in certain analyses, suggesting the broader uptrend intact unless escalation materially worsens. Defensive sectors like consumer staples have shown relative strength in recent rotations, while international exposure via emerging markets or Europe has outperformed in spots amid diversification plays.

Investors continue monitoring diplomatic channels for de-escalation signals, alongside upcoming economic releases that could influence Fed policy expectations. Any stabilization in the Middle East or cooling in oil markets might support a rebound in risk assets, though prolonged uncertainty keeps caution front and center.

The index's valuation, trading at levels reflecting forward earnings growth tempered by macroeconomic risks, appears balanced for total return seekers willing to weather volatility. Consensus views maintain a constructive stance on U.S. large-caps, with emphasis on quality names resilient to energy shocks and potential rate path adjustments.

As March trading unfolds, the S&P 500's performance will hinge on the trajectory of the conflict, commodity prices and incoming data. For now, the market digests the geopolitical shock, balancing growth potential against immediate headwinds from higher costs and uncertainty.