(Bloomberg) -- Stocks fell and crude oil climbed as tensions in the Middle East intensified, with Iran-backed Houthi forces entering the conflict and an expanded US military presence raising concerns of a prolonged confrontation.

US equity-index futures fell 0.6% and Asian shares opened lower Monday as the conflict entered its fifth week, with rising crude oil prices stoking inflation concerns and threatening to slow economic growth. Brent crude advanced more than 2% to over $115 a barrel. The dollar, which has emerged as the haven of choice during the war, edged up 0.2%, rising for a fifth consecutive day.

Israel struck Tehran anew Sunday and Saudi Arabia intercepted almost a dozen drones, a day after Yemen-based Houthi militants entered the war. About 3,500 additional US troops arrived in the Middle East, underscoring the risk of further escalation.

“This escalation raises the odds that this war is going to last longer than investors were thinking and thus that oil prices will remain very high,” said Matt Maley, chief market strategist at Miller Tabak + Co. “We should expect more weakness in the markets.”

After weeks of holding firm in the face of extreme volatility epitomized by tumult in oil markets as the Strait of Hormuz remained closed, risk assets have shown signs of capitulating in recent sessions. The 3.6% drop in the S&P 500 over Thursday and Friday was its worst two-day decline in a year, leaving the benchmark 8.8% below its January record. The Nasdaq 100’s two-day, 4.3% slide sent it into a 10% correction.

Heightened worries about inflation have sparked losses in government bonds, sending yields higher and putting Treasuries on track for their worst month since October 2024 as traders reassess expectations for monetary policy. Interest-rate swaps no longer signal any chance of a Federal Reserve interest-rate cut this year, and some investors are now bracing for the possibility of a hike before the year is out.

Bitcoin fell to its lowest level in more than three weeks as traders turned defensive following the year’s largest options expiry, while investors continued pulling money from crypto exchange-traded funds. The original cryptocurrency fell as much as 5% to $65,522 Friday, the lowest since March 2. It traded just over $66,000 early Monday in Asia.

“Market behavior reflects a clear shift toward capital preservation,” Wee Khoon Chong, a senior strategist at BNY in Hong Kong, wrote in a note to clients. “Recent outperformers are increasingly vulnerable to profit-taking and position unwinds. However, flows are unlikely to rotate meaningfully into fixed income,” given concerns over rising inflation pressures, he wrote.

Oil may hit a record $200 a barrel if the Iran war drags on until June, with the Strait of Hormuz staying shut, Macquarie Group Ltd. warned. A conflict that stretches through the second quarter would result in historically high real prices, analysts including Vikas Dwivedi said in a note, outlining a scenario with odds of 40%. An alternative outlook, with a probability of 60%, suggested the war may finish at the end of this month, they said.

Almost nothing in the standard defensive toolkit has worked for investors to stall declines spurred by rising energy and its impact on inflation expectations. At least three of the four asset classes at the core of a diversified portfolio have fallen in unison for four straight weeks, matching the longest such stretch since May 2022.

A Bloomberg gauge tracking the typical diversified global portfolio - 60% stocks and 40% fixed income - has dropped 6.3% this month, its worst month since Sept. 2022.

While the weekend’s developments “are going to embroil things a little bit, Friday’s close kind of felt like it was a peak pain moment for now,” said Mark Malek, Chief Investment Officer at Muriel Siebert & Co. That may prompt some to start looking for re-entry points.

“The boldest traders are definitely looking for buying opportunities here,” he said. “Many of them have been sitting around waiting for that so-called retail flush and wondering if Friday was it. I will be sitting on my hands.”

Some of the main moves in markets:

Stocks

S&P 500 futures fell 0.6% as of 8:20 a.m. Tokyo time

Hang Seng futures fell 0.9%

Australia’s S&P/ASX 200 fell 1%

Currencies

The Bloomberg Dollar Spot Index rose 0.1%

The euro fell 0.1% to $1.1493

The Japanese yen was little changed at 160.37 per dollar

The offshore yuan was little changed at 6.9209 per dollar

The Australian dollar fell 0.3% to $0.6852

Cryptocurrencies

Bitcoin fell 0.7% to $66,084.48

Ether fell 0.8% to $1,985.13

Bonds

Australia’s 10-year yield was little changed at 5.10%

Commodities

West Texas Intermediate crude rose 2.7% to $102.35 a barrel

Spot gold fell 0.4% to $4,476.44 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Elena Popina.

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