(March 5) : A report underscoring economic resilience and cooling inflationary pressures drove stocks higher at a time when the war in the Middle East clouds the growth outlook. Bitcoin topped US$73,000. Oil whipsawed.
Equities rose as data showed the US service economy expanded at the fastest pace since mid-2022 while a price index hit an almost one-year low. A megacap rally lifted the market, with the Nasdaq 100 up 1.5%. In late hours, Broadcom Inc.’s outlook underwhelmed investors, but the firm announced plans to buy back as much as US$10 billion in shares through the end 2026.
President Donald Trump expressed confidence in the military campaign against Iran even as the timeline for operations remained unclear. Tehran targeted Israel and Gulf states while Israeli and American forces followed through on pledges to bomb targets in the Islamic Republic. The US sank an Iranian warship in international waters.
Meantime, Tehran dismissed a report it had reached out to the US to negotiate an end to the conflict as “pure falsehood.”
Although risk assets face a “significant headwind” from the war and anxiety over artificial intelligence, economic strength and robust earnings mean the extent of a pullback will be limited, according to Goldman Sachs Group Inc.’s Peter Oppenheimer.
“While further escalation remains a risk, we think the more likely outcome is an increase in market risk aversion that likely lasts only a short time until investors can see a winding down of hostilities,” said Scott Wren at Wells Fargo Investment Institute.
See also: US stocks rebound as jobs, services data outweigh Iran concerns
The S&P 500 climbed 0.8%. The dollar slipped 0.3%. The yield on 10-year Treasuries rose three basis points to 4.09%. Crude settled near US$75 a barrel.
“We have been seeing a bit of a ‘squeeze’ on those bearish positions accumulated since the start of the week, as a tentative ‘risk-on’ mood crept back in,” said Fawad Razaqzada at Forex.com. “The conflict is ongoing and there’s no concrete evidence of de-escalation. This could keep pressure on risk assets for a while yet.”
Veteran strategist Louis Navellier notes that today is an example of how geopolitical risks often present short-term buying opportunities. This could change if the Iran conflict heats up, but for now, “we are in a guarded uptrend,” he added.
See also: US stocks pare oil-fueled rout on Trump’s assurances
As US stock investors endure bouts of volatility in the wake of the war, Citadel Securities’ Scott Rubner said his fundamental analysis signals now is a time to turn bullish.
From a technical standpoint, Jonathan Krinsky at BTIG notes that the S&P 500 has reclaimed the 6,800 level, creating the possibility of a “bear trap” below that support. Still, he continues to think that “a low has been made and we should be playing offense more than defense.”
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