(April 13): Equities traded steady as investors assessed the US Naval blockade of the Strait of Hormuz that took effect on Monday and parsed through earnings announcements at home.
The S&P 500 Index rose 0.1% at 10.53am in New York, as gains in technology and energy stocks offset losses in materials, consumer staples and utilities. Goldman Sachs Group Inc was among the index’s worst performers, slipping 2.8% after better-than-expected equity trading revenue failed to offset a miss in fixed-income, currency and commodities trading, marking rough start to earnings season.
The Nasdaq 100 Index traded little changed, while the Dow Jones Industrial Average declined 0.4%. The CBOE Volatility Index hovered near 19.83.
US President Donald Trump deadline passed for the US to begin a blockade of the Strait of Hormuz, dimming optimism about a swift resolution to the Iran war. The US-Iran negotiations failed over the weekend, pushing up oil prices and inflation expectations, while first-quarter (1Q) earnings season kicked off with a mixed start.
Investors that were hoping for a lasting US-Iran deal at negotiations over the weekend “are now back to the drawing board trying to assess the fair value of stocks now that it’s clear that there is no end in sight to the conflict in the Middle East,” said Clark Bellin, president and chief investment officer at Bellwether Wealth.
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Stocks advanced for much of last week on hopes that the peace talks in Pakistan would help bring about an end to the US-Israeli war against Iran.
As oil prices pushed back towards near US$100 a barrel, the move sent energy and fertiliser stocks higher, while airlines dropped.
Trump has made a “high stakes gamble aimed at forcing Iran to bow to his demands,” said Wealth Club strategist Susannah Streeter.
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But Trump’s record of pulling back from the brink leaves markets hopeful an agreement can be salvaged, she said. The blockade may also be designed to pressure Beijing — which buys oil from Iran — into playing a more active role in reopening the Strait, according to Capital Economics.
Morgan Stanley’s Mike Wilson wrote on Monday that while the S&P 500 may experience renewed weakness and fall to the 6,300 to 6,500 level, it may be a buying opportunity. He said countries would find ways to solve the impasse at the Hormuz, which is “intolerable for the global economy”.
Yet there is some scepticism of the buy-the-drip approach. Retail traders, who had been some of the most consistent buyers of stocks in recent months, have become net sellers of exchange traded funds and JPMorgan strategists say positioning by the group shows scepticism on last week’s rally.
Goldman’s earnings miss on Monday morning offered traders one of the first looks at the financial health of corporate America. Wall Street’s biggest banks are expected to report a record US$18 billion stock-trading haul during 1Q as the war and the software scare fueled more activity from investors. JPMorgan Chase & Co, Wells Fargo & Co and Citigroup Inc are all due to report earnings on Tuesday morning.
“A positive earnings season will be needed to counterbalance the stagflationary tone the market seems to be embracing,” JC O’Hara, chief market technician at Roth Capital Partners LLC.
In single-stock news, Fastenal Co shares fell 5.3% after the industrial distributor reported a gross profit margin that contracted slightly more than Wall Street expected.
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