STOXX 600 Hits Two-Week Low Amid Middle East Conflict

European equity markets fell sharply on Monday, with the pan-European STOXX 600 index dropping 1.8% to 622.35 points, its lowest level since mid-February. The decline comes as the military conflict in the Middle East shows no signs of easing, prompting investors to retreat from record highs reached last Friday. While the majority of sectors traded in negative territory, energy and defense stocks saw significant gains driven by rising commodity prices and increased geopolitical risk. The energy sector index rose 3.5% as Brent Crude Oil prices surged by as much as 13%. This spike followed disruptions to shipping in the Strait of Hormuz caused by retaliatory attacks from Iran. In response to the higher oil prices, energy majors Shell plc, BP p.l.c., and TotalEnergies SE all gained over 5%. Geopolitical tensions escalated further as the United States and Israel conducted fresh military strikes on Iranian targets. These actions followed weekend attacks that resulted in the death of Iran's Supreme Leader, leading to missile barrages across the region and raising fears of a wider conflict involving neighboring countries. The travel and leisure sector experienced the most significant downturn, falling 4.4%. Germany based airline Deutsche Lufthansa AG saw its shares drop 11% as it extended flight suspensions in the region. Banking and insurance stocks also faced pressure, declining 3.6% and 2% respectively. In contrast, defense stocks rallied as the conflict intensified. BAE Systems plc, Rheinmetall AG, SAAB AB-B, and LEONARDO SPA all saw their share prices increase between 5% and 8%.