(May 26): Equities climbed and US oil prices were lower as investors bet that a deal to re-open the Strait of Hormuz was close, even as hostilities flared to test the fragile ceasefire.
The S&P 500 Index opened 0.6% higher on Tuesday morning, on track for a fourth day of gains. Micron Technology Inc climbed after UBS raised its price target on the memory chipmaker, expecting the stock to more than double. The Nasdaq 100 Index rose 1.2% at the opening bell, while the Dow Jones Industrial Average climbed 0.3%.
“Markets are expecting this latest round of talk to yield the highly sought peace deal between the US and Iran,” said Mike O’Rourke, chief market strategist at JonesTrading Institutional Services LLC.
Optimism that both sides are nearing a peace deal held even as US and Israeli jets struck Iranian targets on Monday. The attack came hours after President Donald Trump signaled negotiations with Tehran on an interim deal were progressing. Iran’s Supreme Leader Mojtaba Khamenei said US military bases in the Middle East will no longer be safe after the war.
“Markets have been optimistic for two months that hostilities with Iran ended with the ceasefire, but that optimism is misguided, as it has simply become a long stalemate with nearly all the ships still stranded in the Persian Gulf, and frequent false hopes of an imminent deal,” said Dennis Follmer, chief investment officer at Montis Financial.
West Texas Intermediate oil prices continued to fall Tuesday, nearing US$92 a barrel. Treasury yields slipped but remain elevated as the curve signals a higher-for-longer warning on rates. Morgan Stanley strategists led by Mike Wilson said the stock market can handle higher yields as long as strong economic growth is the main catalyst.
See also: US stock futures gain as crude oil drops on Iran
The S&P 500 has rallied nearly 14% since the beginning of April, leaving some on Wall Street to question whether investors have already priced in a peace deal.
“Don’t expect an agreement to immediately send the S&P 500 running to 8,000,” wrote Tom Essaye, founder of the Sevens Report. Still, he said the end of the war would allow investors to focus on strong earnings growth, which will “increase the rally potential for the market.”
Still ahead Tuesday, investors are awaiting a consumer confidence reading at 10am.
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Among single-stock movers, AutoZone Inc is among the worst performers in the S&P 500, plunging after the automotive parts retailer’s third-quarter sales missed expectations. Important earnings still to come include Salesforce Inc on Wednesday and Cosctco Wholesale Corp on Thursday.
Investors will also parse personal consumption expenditure data and a GDP reading on Thursday as well as wholesale and retail inventories on Friday.
Uploaded by Magessan Varatharaja
