Dow Jones futures fell 0.2% to near 46,800 in European trading on Tuesday. S&P 500 and Nasdaq 100 futures dropped 0.34% and 0.45% to about 6,620 and 24,250.
The declines came ahead of a deadline set by US President Donald Trump for Iran to reopen the Strait of Hormuz by 8:00 PM Eastern Time on Tuesday. Trump previously warned of possible strikes on Iranian power plants and bridges if demands are not met.
Markets Watch Hormuz Deadline
On Monday, Trump said the latest US ceasefire proposal with Iran was “not good enough”, while describing it as progress. Iran said it would respond to any US strikes on civilian infrastructure by intensifying attacks on Gulf energy assets.
In Monday’s cash session, the Dow rose 0.36%, the S&P 500 gained 0.44%, and the Nasdaq 100 added 0.54%. Eight of 11 S&P sectors finished higher, led by consumer discretionary, energy, and consumer staples.
Energy price rises have raised inflation concerns, and markets expect the Federal Reserve to keep rates steady this month and through year-end. CME FedWatch shows a 99.5% probability of no change at the April meeting.
Focus is also on FOMC minutes due Wednesday, inflation data on Friday, and Delta Air Lines earnings this week.
Positioning For Volatility
Stock futures are slipping, which should feel familiar as we watch the current geopolitical situation unfold. We saw a similar pattern of risk aversion last year ahead of the Trump administration’s deadline for Iran in 2025. This nervous price action in the coming weeks is best navigated by looking at how markets reacted back then.
The most immediate lesson from the 2025 standoff is to prepare for a spike in volatility. We saw the CBOE Volatility Index (VIX) surge over 25% in the days leading up to that deadline, creating sharp, unpredictable swings in the market. Buying call options on the VIX or using straddles on the SPDR S&P 500 ETF (SPY) could be an effective way to position for increased turbulence.
Energy prices are the most direct transmission mechanism for this sort of conflict. With the Strait of Hormuz still responsible for the transit of about 21% of global petroleum liquids consumption, any threats to this chokepoint will immediately send oil prices higher. Call options on crude oil futures or the Energy Select Sector SPDR Fund (XLE) offer direct exposure to this risk.
This feeds directly into inflation concerns and the Federal Reserve’s response. Last year’s energy price spike fueled fears of a more hawkish Fed, a concern that is very much alive today with the latest Consumer Price Index (CPI) data showing inflation holding at a stubborn 3.1%. Traders should watch interest rate derivatives, as the upcoming FOMC minutes could signal a tougher stance on inflation than the market is currently pricing.
Beyond broad market plays, we should look at specific sectors. During the 2025 tensions, we saw defense sector stocks like those in the iShares U.S. Aerospace & Defense ETF (ITA) rally as the rhetoric intensified. This historical precedent suggests that buying call options on such names could provide a valuable hedge against escalating conflict.
