(March 5): Stocks climbed on Wednesday morning as oil prices slipped and traders seized on better-than-expected labour market data and an expansion in services activity, upbeat data that helped offset worries around the continuing conflict in the Middle East.
The S&P 500 extended gains to 0.6% at 10.20am in New York, led by the consumer discretionary and information technology sectors. The move follows a sharp drop from Tuesday that featured broad-based declines across all sectors.
The Nasdaq 100 Index rose 1.1%, while the Dow Jones Industrial Average rose 0.5%.
US services activity expanded in February at its fastest pace since the middle of 2022, according to the Institute for Supply Management. Separate data from ADP Research showed private-sector payrolls increased 63,000 in February, ahead of consensus estimates and a sign of a strength ahead of Friday’s key US employment report.
Federal Reserve governor Stephen Miran also said it is still appropriate to continue cutting interest rates despite the Iran war.
See also: US stocks pare oil-fueled rout on Trump’s assurances
Market sentiment initially improved on Wednesday morning on a New York Times report that operatives from Iran’s Ministry of Intelligence reached out to the CIA to discuss terms for ending hostilities, which Iran later denied. Oil prices slipped for the first time since the war began on the news, and remained lower even after the denial.
“The broad tone across global markets is a bit more positive this morning,” said Derek Holt, vice-president and head of capital markets economics at Scotiabank. He cautioned that the “catalyst for a little more optimism is on shaky foundations” and the US administration doesn’t consider the Iranian overture for ending the conflict to be serious.
The S&P 500 has lurched between gains and losses since the US and Israel first struck Iran over the weekend. The conflict has since escalated, with multiple Gulf states hit by Iranian retaliation and Israel hitting targets in Lebanon. The North Atlantic Treaty Organization shot down an Iranian ballistic missile on Wednesday headed for Turkey.
See also: US stocks and bonds sink as oil surge rattles traders
“Two days of dip buying have limited S&P 500 losses for the week,” said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services. “The equity market’s mechanical reaction to oil prices has driven the recent AI and private credit anxieties from the market mindset.”
Traders have been dusting off investing playbooks from 2022, when Russia invaded Ukraine, betting that a spike in energy prices will stoke inflation. Oil producer stocks are seen as an inflation hedge and have been the top-performing sector this year, even before the Iran war began.
The market’s “benign” reaction to the events in the Middle East has surprised David Solomon, chair of Goldman Sachs Group Inc.
“The complacency that exists today among investors could change on a dime,” said Matt Maley, chief market strategist at Miller Tabak + Co. “Investors should be thinking about how they will react if we do not get the best-case scenario outcome in Iran.”
Wall Street strategists warned against relying on a so-called Trump put when it comes to the Iran war and that the fallout may be harder to contain.
Near-term volatility spiked this week. The VIX curve’s inversion is “consistent with a moderate stock market pullback in the wake of the Iran news,” Brian Reynolds, chief market strategist at Reynolds Strategy LLC, wrote in a note to clients.
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Elsewhere, Treasury Secretary Scott Bessent said on Wednesday morning that global 15% tariffs on US imports would likely start this week. Traders also assessed a rise in mortgage applications, with S&P Global purchasing managers index data expected at 9.45am.
Still ahead on Wednesday, traders will parse Broadcom Inc’s earnings after the close.
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