U.S. stocks curbed morning losses after President Trump ordered an airstrike on Iraq that killed an Iranian general.
All three of the major U.S. averages, while lower, are off the worst levels of the session. The Dow at one point was off over 330 points.
Although investors continued to seek the safety of U.S. treasuries and gold, the yellow metal also trimmed its gains as it hovers near a four-month high and oil surged to an eight-month high, but also trimmed its gains.
Still, energy stocks rose in tandem.
Defense stocks also got a pop. The team at Citigroup notes if Middle East tensions continue to rise it will be harder for Democratic candidates to argue against a "stronger 2020" defense budget.
On the flip side, airlines tumbled, partly on fears of higher fuel costs.
News that Gen. Qassem Soleimani, head of Iran’s elite Quds Force, was killed in an airstrike at the Baghdad international airport prompted expectations of Iranian retaliation against U.S. and Israeli targets.
Trump, in a tweet, blasted Soleimani over the killing of Americans and lamented that the people of Iraq do not want to be controlled by Iran.
Despite the fear of retaliation, oil watchers including Stephen Schork of the Schork Report, say Iran has more to lose than the United States because of American energy independence.
In other corporate news, Tesla shares rose to a record after reporting that deliveries exceeded expectations.
On the economic front, the manufacturing sector continues to contract. The ISM-Manufacturing Index fell to the weakest reading since June 2009.
Despite the uptick in volatility amid tensions in the Middle East, Wall Street set new records on Thursday. Investors were encouraged by expectations of stronger global economic growth in 2020 and the planned signing of an interim U.S.-Chinese trade agreement.
In Asian markets trading, China's Shanghai Composite shed 0.1 percent and Hong Kong's Hang Seng lost 0.4 percent. Japan's markets remained closed.
In Europe, London's FTSE fell 0.5 percent, Germany's DAX dropped 1.7 percent and France's CAC declined 0.6 percent.
There was no immediate indication of how Iran would respond to Soleimani's death.
FOX Business' Ken Martin and The Associated Press contributed to this article.