(April 3): Stocks reversed sharp declines to close higher, as investors monitored fresh developments around the Strait of Hormuz and the war in the Middle East. Oil prices held onto hefty gains.
The S&P 500 Index closed up 0.1% after tumbling earlier in the session. The Nasdaq 100 ended 0.1% higher, also rebounding from a deep loss. West Texas Intermediate was up 12% at around US$112 per barrel.
Iran is drafting a protocol with Oman to monitor traffic through the Strait of Hormuz, having effectively shut it down since the start of the war, state-run IRNA reported. That would require shippers to pay tolls to the Islamic Republic, Iran Deputy Foreign Minister Kazem Gharibabadi said in an interview with Sputnik.
The passage is officially international waters and any attempt by Iran to assert control over traffic would be opposed by Western powers and Gulf Arab states.
“Equity markets seem to be looking past the risk of a higher embedded premium in oil and more focused on the Strait reopening,” said Adam Turnquist, chief technical strategist for LPL Financial. “With oil clearly in the driver’s seat of risk appetite, sustainability of the recovery in equity markets appears vulnerable.”
Stocks started off the session deep in the red after a Wednesday speech from President Donald Trump did little to reassure investors that the war in the Middle East was nearing a swift resolution, though he has previously set a two-to-three-week timeline for ending the conflict. On Thursday, Trump issued fresh threats on Iranian infrastructure in a bid to pressure Tehran in negotiations.
See also: US stocks drop as Trump speech dashes hope for war’s early end
“The upshot is that markets remain uncertain as to how long the acute disruptions we are seeing to global energy supplies will persist,” wrote James McCann, senior economist, Edward Jones. “Against this backdrop, sentiment will likely remain headline-driven in coming sessions, with volatility likely to remain elevated over the short term at least.”
The two-year Treasury yield was little changed at 3.80%.
Shares of top asset managers slid after Blue Owl Capital Inc. said it will limit redemptions from two of its private credit funds after facing a surge in withdrawal requests.
See also: US stocks extend rally on war-end optimism, oil falls
War pattern
The higher close for the S&P 500 runs counter to a pattern of late-week selloffs that have hit the market ever since the war began, as nervous investors unwind positions that could be upended if weekend developments threaten to worsen the hit to the global economy.
“While assets gyrate on every new headline, until a clear agreement is achieved with a palatable plan for reopening the Strait, there’ll be downward pressure on economic growth and upward pressure on headline inflation,” said Max Gokhman, deputy CIO, Franklin Templeton Investment Solutions. “That spells indigestion for both equity and bond investors.”
Tesla Inc. shares fell after the company posted one of its worst sales quarters in years, missing Wall Street’s expectations, as it struggles to turn around its core business and navigate an increasingly challenged electric-vehicle market.
Ahead of Friday’s March payrolls report, jobs data on Thursday gave mixed signals on the labor market. A report from Challenger, Gray & Christmas Inc. showed a 25% increase in job-cut announcements in March from the previous month. Meanwhile, initial jobless claims unexpectedly fell in the week through March 28.
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