(June 4): The rally in US stocks stalled on Wednesday as clashes between the US and Iran put further strain on a fragile ceasefire agreement, while also driving oil higher.
The S&P 500 Index fell 0.6% at 12.21pm in New York, putting the gauge on track to snap a winning streak that currently ties the longest since 1995. Meanwhile, the Nasdaq 100 Index traded 0.4% lower. Brent crude advanced 2.5% to US$96.
“We are no longer watching a delicate ceasefire, instead what is occurring is more akin to a low-intensity conflict,” said Chris Beauchamp, chief market analyst at IG. “This simply leaves the vital issue of oil supplies unresolved, and the clock continues to tick down towards doomsday for oil inventories and the global economy.”
The US and Iran clashed again overnight in one of the most serious flareups since the ceasefire came into effect, with Kuwait and Bahrain both caught in the crossfire. The Islamic Republic targeted the US’s main naval base in the region, located in Bahrain, and the Ali Al-Salem airbase in Kuwait. At least one person was killed in a separate strike at Kuwait’s civilian airport.
A key theme this week has been rising tensions between Washington and Tehran as the two sides talk about an interim peace deal. Israel’s escalating attacks in Lebanon has complicated matters, with President Donald Trump confirming that he swore at Israeli Prime Minister Benjamin Netanyahu on a call this week as he tried to de-escalate the hostilities.
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“It is unclear if talks to end the war and reopen the Strait are ongoing, but the latest developments suggest that investors may have been too quick to price in the impact from last week’s promised memorandum of understanding between Iran and the US,” said Kathleen Brooks, research director at XTB.
Outside of the Middle East, investors are keeping an eye on the remaining slate of economic data due this week, particularly on labour. Initial jobless claims will be released on Thursday and the monthly employment report for May is due on Friday.
“Attention will increasingly turn toward incoming economic data, particularly US labour market figures, as investors assess whether the current combination of strong earnings, resilient growth and elevated inflation can continue,” said Daniela Hathorn, senior market analyst at Capital.com.
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AI rally stays on track
Even as many artificial intelligence-related (AI) names declined on Wednesday, Marvell Technology Inc rose 5.3%, putting the stock on track to extend Tuesday’s 33% rally. The semiconductor and networking company’s surge comes after Nvidia Corp chief executive officer Jensen Huang predicted the firm would be the next business to hit US$1 trillion in valuation. The valuation will soar now that the age of “useful AI has arrived,” Huang said on Tuesday.
While investors have had a risk-on tone this week, the pace of the rally has moderated, according to Capital.com’s Hathorn. The “tension” between strong growth and persistent inflation continues to be a key driver, she added.
“For now, risk appetite remains supported, but with stretched valuations and shifting monetary policy expectations, markets appear increasingly sensitive to any signs that the earnings and growth story may begin to soften,” Hathorn said.
Still, some see the S&P 500 continuing to move higher. Ned Davis Research strategists boosted their price target for the 500-member gauge to 7,950 points, with AI growth helping underpin their prediction.
“Strong earnings growth on AI-fuelled margin expansion is key to the rally continuing,” the firm’s Ed Clissold and Thanh Nguyen wrote in a note.
In terms of other single-stock moves, Palo Alto Networks Inc slipped despite releasing an adjusted earnings forecast that was stronger than expected. Macy’s Inc advanced after lifting its sales outlook for the year.
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