U.S. equity markets concluded Tuesday’s trading session mostly higher, with the S&P 500 Index ($SPX) and Nasdaq 100 Index ($IUXX) both achieving new all-time highs. The S&P 500 advanced by +0.61%, and the Nasdaq 100 surged by +1.76%. In contrast, the Dow Jones Industrial Average ($DOWI) registered a modest decline of -0.23%.
The market’s upward momentum was primarily fueled by renewed hopes for de-escalation in the Middle East, specifically progress in U.S.-Iran peace talks. Reports indicated that officials signaled the U.S. was nearing a deal with Iran to reopen the critical Strait of Hormuz and restore oil flows. According to the Washington Post, a memorandum has been developed that would extend a ceasefire by 60 days, with the Strait of Hormuz to be de-mined and reopened if agreed upon. Secretary of State Rubio acknowledged that negotiations would still ‘take a few days’ as both sides refine the initial document language.
Geopolitical Volatility and Crude Oil Dynamics
The prospect of increased oil supply from the Strait of Hormuz initially sent WTI crude oil prices (CLM26) tumbling to a 2.5-week low, falling more than -2% on Tuesday. This decline in crude oil, coupled with a drop in bond yields, provided significant support for technology stocks. The 10-year T-note yield, for instance, fell to a 1.5-week low of 4.47%, with June 10-year T-notes (ZNM6) closing up by +18.5 ticks.
However, market sentiment remained volatile. Stock index futures were undercut later in the day after the U.S. Central Command announced that U.S. forces had struck Iranian missile-launch sites and boats attempting to place mines in the Strait of Hormuz. This military action caused crude prices to rebound from their lowest levels, highlighting the fragile nature of the peace negotiations and the ongoing geopolitical risks.
The International Energy Agency (IEA) recently reported that global oil inventories declined by approximately 4 million barrels per day (bpd) in March and April, projecting the market to remain ‘severely undersupplied’ until October, even if the conflict concludes next month. Goldman Sachs estimates the current disruption has already drawn down nearly 500 million barrels from global crude stockpiles, with a potential to reach 1 billion barrels by June.
Sectoral Performance and Key Movers
The day’s trading saw distinct shifts across sectors. Chipmakers and AI infrastructure stocks led the rally, with Micron Technology (MCHP) soaring over +20% after UBS raised its price target. ON Semiconductor (ON) climbed more than +10%, while Western Digital (WDC) and Advanced Micro Devices (AMD) also posted gains exceeding +7%. Marvell Technology (MRVL) and KLA Corp (KLAC) rose over +6%, with Applied Materials (AMAT), Analog Devices (ADI), Microchip Technology (MCHP), NXP Semiconductors NV (NXPI), Lam Research (LRCX), and Texas Instruments (TXN) all up more than +5%.
Airlines and cruise line operators also benefited significantly from the drop in crude oil prices, which reduces fuel costs and bolsters profitability. American Airlines Group (AAL) closed up more than +7%, Alaska Air Group (ALK) gained over +6%, and United Airlines Holdings (UAL) rose more than +5%. Delta Air Lines (DAL), Norwegian Cruise Line Holdings (NCLH), and Royal Caribbean Cruises Ltd (RCL) each saw increases of more than +4%.
Conversely, energy producers and service providers retreated as WTI crude oil prices slid. Devon Energy (DVN) fell over -4%, and Chevron (CVX) declined more than -3%, leading losers in the Dow Jones industrials. Exxon Mobil (XOM), ConocoPhillips (COP), and APA Corp (APA) also dropped more than -3%. Defensive health insurance stocks, including Centene (CNC) down over -3% and UnitedHealth Group (UNH) down over -2%, were under pressure amid the broader market rally.
Economic Data and Central Bank Outlook
Tuesday’s U.S. economic news presented a mixed picture. The April Chicago Fed National Activity Index rose +0.29 to a 13-month high of 0.14, exceeding expectations. However, the March S&P Composite-20 home price index increased by +0.83% year-over-year, a smaller gain than anticipated and the smallest in over 2.5 years. The Conference Board U.S. May consumer confidence index also saw a modest decline of -0.7 to 93.1, though this was a smaller drop than expected.
Globally, overseas stock markets largely settled lower, with the Euro Stoxx 50 down -1.18%, China’s Shanghai Composite down -0.17%, and Japan’s Nikkei Stock Average down -0.25%. While the markets are currently discounting only a 3% chance of a -25 basis point FOMC rate cut at the next meeting on June 16-17, European Central Bank (ECB) officials signaled a different path. ECB Executive Board member Isabel Schnabel stated that an ECB rate hike in June would be needed, citing the ‘high persistence of the energy shock.’ ECB Chief Economist Philip Lane echoed this, suggesting the ECB would likely raise its quarterly inflation outlook next month due to elevated energy prices from the Iran conflict. Swaps are currently discounting a 91% chance of a +25 bp ECB rate hike on June 11.
Despite the geopolitical crosscurrents, the current earnings season has largely been supportive of stocks, with 83% of the 475 S&P 500 companies reporting Q1 earnings beating estimates. Q1 S&P 500 earnings are projected to climb +12% year-over-year, according to Bloomberg Intelligence, though stripping out the technology sector, the increase is a more modest +3%, the weakest in two years. This underlying corporate strength, combined with the ebb and flow of Middle East peace prospects, continues to shape market movements, underscoring the sensitivity of global equities to both geopolitical stability and fundamental economic performance.
