(May 8): A rally that drove stocks to record highs faltered and oil whipsawed as doubts resurfaced about an imminent US-Iran deal that would revive energy flows through the key Strait of Hormuz.
Following its biggest advance in a month, the S&P 500 fell. US crude settled near US$95 after briefly dropping below US$90. Prices climbed in late hours on a news report that sounds of several explosions were heard near a port city in southern Iran. Separately, the nation’s state TV said the US military attacked an Iranian oil tanker and was hit back by missiles.
The US is looking to restart the initiative to guide stranded ships though Hormuz that it had paused earlier this week, the Wall Street Journal reported. The plan — which President Donald Trump dubbed “Project Freedom” — had resulted in clashes with Iran and missiles fired at the United Arab Emirates.
Washington is waiting on Tehran to respond to its proposal to reopen the strait, with tensions still high in both the Persian Gulf and in Lebanon. An Iranian official said the nation wouldn’t allow a reopening with “an unrealistic plan,” the Wall Street Journal reported, citing Press TV.
A US intelligence analysis concluded Iran can survive the naval blockade for at least three to four months before facing more severe hardship, according to the Washington Post. Tehran has laid out a set of new rules for vessels seeking to transit Hormuz, according to a document seen by CNN.
Oil will continue to fluctuate wildly until it’s clear whether there’ll be a deal to end the war, according to Citigroup Inc’s Max Layton.
See also: Stocks hit all-time highs on hopes war is near end
“In that environment where you basically don’t know if there’s going to be a deal or not — very difficult to predict with this new leadership in Iran — you know you’re going to be subject to news and you’re going to be moving around like crazy,” Layton told Bloomberg Television.
Wall Street’s optimism around a resolution of the war had recently buoyed investor sentiment, which was also bolstered by solid corporate earnings and signs of economic resilience.
“Markets continue to be underpinned by strong and accelerating corporate earnings and resilient economic fundamentals, even as investors navigate ongoing geopolitical uncertainty,” said Mona Mahajan at Edward Jones.
See also: Stocks rise to record and oil falls as truce holds
On the economic front, initial jobless claims rebounded slightly after falling in the previous week to near the lowest levels in decades, signaling layoffs remain muted. Friday’s jobs reading is expected to show the first back-to-back monthly increases in payrolls in almost a year.
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