By Matt Egan and David Goldman, CNN

(CNN) — Oil sold off sharply and stocks rallied after Iran fired missiles toward US bases in Qatar and Iraq that appeared to be intercepted.

Traders are betting that Iran doesn’t have the willingness or capability to retaliate against US forces. And they’re hoping that this will be the extent of the Iranian response.

US stock market investors are also breathing a huge sigh of relief. A sustained spike in oil prices would damage the US economy, raising costs for consumers and businesses.

Falling oil prices lifted US stocks. US crude tumbled 7.2% to $68.51 a barrel, the biggest one-day drop since early April and one of the worst days over the past three years.

It’s the first time oil has traded below $70 since June 12, a day before Israel began launching strikes at Iran’s nuclear facilities, and marks a dramatic turnaround from the Sunday evening spike of 6% to as high as $78.50 a barrel.

Meanwhile, the Dow rose 374 points, or 0.89%, reversing course after falling earlier in the afternoon. The S&P 500 gained 0.96% and the Nasdaq Composite was 0.94% higher. CNN’s Fear and Greed Index, which measures market sentiment, ticked into Greed after hovering in Neutral.

“I think what you’re seeing in many ways is a symbolic attack by Iran,” Kirk Lippold, former commanding officer on the USS Cole, told CNN. “Ten missiles is not that much. Every one is dangerous, every one could kill or maim many Americans. But hopefully at this point we’re not going to see further responses by the Iranians.”

By comparison, Iran said it launched “hundreds” of missiles against locations across Israel on June 13 in response to Israeli strikes.

At the moment, all signs point to a limited response: Iranian officials gave Qatar advance notice that an attack was coming before launching missiles toward a US military base located there, according to a source familiar with the matter. The coordination was intended to minimize casualties and preserve an off ramp, the source said.

The Trump administration was anticipating Iran would retaliate after the US strikes, and the president does not want more military engagement in the region, a senior White House official told CNN Monday.

A difficult balancing act

Investing in US markets lately is akin to spinning plates while riding a unicycle balanced on a bowling ball. Traders have to contend with rapidly changing tariffs, mixed economic signals, uncertainty over rates and now an escalating conflict in the Middle East.

Using conventional wisdom, you might assume that the United States’ historic strikes on three Iranian nuclear facilities over the weekend would send stocks lower and oil prices higher, for fear of retaliation and a potential Iranian blockade of the Strait of Hormuz, a critical shipping lane through which about a fifth of the world’s oil flows. Yet the opposite is true. Bonds are quiet.

Investors are maintaining their balancing act: It’s not entirely clear what happens next — or what position to take. If the US and Israeli strikes are largely over, and Iranian retaliation is muted, this could be a net positive for markets, lessening volatility and the threat of a nuclear-armed Iran. If the conflict escalates — particularly if Iran cuts off oil supplies to the West — that, combined with a growing trade war, could reignite inflation and a global recession.

“As of now, there’s a certain symbology to this,” Cedric Leighton, CNN military analyst and retired US Air Force Colonel, said on CNN Monday afternoon. “If they (Iran) can control their reaction, they wish for an offramp to some degree, but that’s something that remains to be seen. … If we decide to respond more forcefully to this, all bets are off at that point.”

Meanwhile, oil markets are waiting for evidence of an actual disruption, said Bob McNally, president of Rapidan Energy Group.

“Traders have seen a lot of false alarms when it comes to geopolitical disruption risk in the oil market,” McNally told CNN. “Unless there’s a material interruption in gulf energy, production, or flows, I think any further spikes will be contained.”

Even Energy Secretary Chris Wright said in a CNBC interview on Monday that he expected oil to fall, given the level of tensions — but prices have sunk more sharply than he predicted.

“I would not expect much movement of oil upwards from the tensions that are going on,” Wright said. “I’m not surprised oil prices have moved down a little bit, maybe more than I would have guessed.”

Safe-haven trades, which tend to boom in times of global strife, were muted: Gold rose just 0.2% to $3,390 a troy ounce. Treasury yields were all very slightly lower as bond gained a bit.

The dollar fell, too, slipping 0.3% Monday afternoon. It had been up nearly 1% earlier.

America’s currency has tumbled after the Trump administration put in place historic tariffs on foreign imports as investors feared a looming inflation-induced economic downturn. The dollar, widely referred to as the world’s reserve currency, tends to rally in times of global unease and conflict, but some market observers questioned if that would happen again under Trump’s “America First” policies.

It’s not clear that fear of conflict in the Middle East was lifting the dollar, earlier Monday though — it was more likely getting a boost from higher oil prices, since oil globally is traded in dollars.

“While the broader bias still leans toward structural dollar weakness, escalating Middle East tensions are injecting support for the greenback via the commodity channel,” said George Vessey, lead FX and macro strategist at Conerva, in a note to investors Monday morning. “That channel will remain central in the days ahead, as Iran — according to state-run TV — has vowed to retaliate by closing the Strait of Hormuz.”

So there’s a risk that an escalation sends oil and gas prices surging and the economy slowing just as higher global tariffs kick in. The Federal Reserve may be hamstrung if inflation surges, unable to lower its key interest rates that tend to lift the economy and markets.

For now, Wall Street is largely looking past the Middle East conflict.

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CNN’s Alayna Treene, Zachary Cohen and Haley Britzky contributed to this report.