US stock indexes concluded Monday’s trading session on a mixed note, with the S&P 500 Index ($SPX) shedding 0.07% and the Nasdaq 100 Index ($IUXX) falling 0.45%. In contrast, the Dow Jones Industrial Average ($DOWI) managed a gain of 0.32%. This divergence occurred as the unresolved conflict involving Iran continued to cast a shadow over global markets, contributing to significant volatility in crude oil prices.
Geopolitical Tensions Drive Market Volatility
The market’s early advance on Monday faltered, leading to the mixed closing figures. Crude oil prices experienced sharp swings, oscillating between gains and losses, largely influenced by the ongoing stalemate between the United States and Iran, which has resulted in the closure of the Strait of Hormuz. Iran’s assertion that US demands for ending the war were ‘excessive and unrealistic’ propelled crude prices to a three-week high during the session.
This surge in oil prices subsequently pushed bond yields higher. The yield on the 10-year T-note climbed to a 15-month high of 4.63%, a development that typically weighs on stock valuations. However, stocks found some support and bounced off their lows later in the afternoon when crude oil prices experienced a significant tumble of more than $2 a barrel in post-market trading. This decline followed President Trump’s announcement that he had canceled a planned attack on Iran scheduled for Tuesday, citing requests from leaders of Saudi Arabia, Qatar, and the United Arab Emirates to allow more time for diplomatic efforts.
Earlier sentiment had been impacted by President Trump’s remarks on Sunday, where he warned Iran that the ‘clock is ticking’ and that failure to swiftly pursue a peace deal would result in severe consequences. Further exacerbating geopolitical concerns, Reuters reported that Pakistan had deployed 8,000 troops, a squadron of fighter jets, and an air defense system to Saudi Arabia as part of a mutual defense pact. This deployment was described as a ‘substantial, combat-capable force’ intended to support Saudi Arabia in the event of further attacks.
Economic Data and Global Influences
On the domestic economic front, Monday’s data provided some support for the stock market. The May NAHB housing market index rose by 3 points to 37, exceeding expectations of remaining unchanged at 34.
Conversely, weaker-than-expected economic indicators from China presented a bearish outlook for global growth prospects. China’s industrial production in April rose by a mere 4.1% year-over-year, falling short of the anticipated 6.0%. Retail sales in China for April also showed a subdued increase of 0.2% year-over-year, significantly below the expected 2.0%. Furthermore, new home prices in China declined by 0.19% year-over-year in April, marking the thirty-fifth consecutive month of price decreases.
WTI crude oil prices (CLM26) exhibited extreme volatility throughout Monday. The commodity initially surged over 3% to a three-week high following the news of Pakistan’s military deployment to Saudi Arabia and Iran’s comments regarding US demands. However, prices reversed sharply lower when President Trump announced the cancellation of the planned strike.
Recent events have heightened concerns about oil supply. On Sunday, the United Arab Emirates reported a drone incident at its Barakah nuclear plant, and Saudi Arabia announced the interception of three drones. The International Energy Agency (IEA) previously noted in a monthly report that global oil inventories declined by approximately 4 million barrels per day in March and April, projecting a ‘severely undersupplied’ market until October, even if the conflict concludes next month. Goldman Sachs estimates that the current disruptions have already depleted nearly 500 million barrels from global crude stockpiles, with a potential drawdown reaching 1 billion barrels by June.
Interest Rates and Earnings Season
In the interest rate environment, the market is currently discounting a 0% chance of a 25 basis point FOMC rate cut at the upcoming Federal Open Market Committee meeting on June 16-17. The June 10-year T-notes (ZNM6) closed down by 5 ticks on Monday, with the 10-year T-note yield rising 1.7 basis points to 4.606%. The 10-year T-note yield reached a 15-month high of 4.631% during the session, influenced by the rally in crude oil and rising inflation expectations, which pushed the 10-year breakeven inflation rate to a three-year high of 2.530%.
Earnings season is nearing its conclusion, with reports thus far generally supportive of equities. As of Monday, 83% of the 454 S&P 500 companies that have reported first-quarter earnings have surpassed estimates. First-quarter S&P 500 earnings are projected to increase by 12% year-over-year, according to Bloomberg Intelligence. However, excluding the technology sector, first-quarter earnings are expected to grow by around 3%, representing the weakest growth in two years.
Global Markets and Sector Performance
Overseas, stock markets also presented a mixed picture. The Euro Stoxx 50 rebounded from a 1.5-week low, closing up 0.36%. In Asia, China’s Shanghai Composite dropped to a two-week low, ending down 0.09%, while Japan’s Nikkei Stock Average fell to a one-week low, closing down 0.97%.
Within the US market, chipmakers and AI infrastructure stocks faced selling pressure, reversing earlier gains and impacting the broader market. Companies such as Seagate Technology Holdings Plc (STX), Micron Technology (MU), and Applied Materials (AMAT) saw significant declines. Cryptocurrency-exposed stocks also retreated as Bitcoin fell more than 2%.
On the upside, Zscaler (ZS) led cybersecurity stocks higher after an analyst upgrade. Hims & Hers Health (HIMS) experienced a notable decline following its announcement of a convertible senior notes offering. Regeneron Pharmaceuticals (REGN) was a prominent loser in the S&P 500 and Nasdaq 100 after its Phase 3 trial data fell short of expectations. Mobileye (MBLY) initiated coverage with an underperform rating. LiveRamp Holdings (RAMP) surged on news of an acquisition by Publicis Groupe SA. Bio-Rad Laboratories (BIO) also climbed after a report of a significant stake taken by Elliot Investment Management. Dominion Energy (D) rose on reports of potential acquisition discussions, and Cognizant Technology Solutions (CTSH) and Boston Scientific (BSX) saw gains driven by increased share repurchase programs.
Looking ahead, the market continues to digest the evolving geopolitical situation in the Middle East and its implications for energy prices and broader economic stability. While domestic economic data has shown some resilience, global growth concerns, particularly from China, remain a factor. The upcoming earnings reports and central bank policy decisions will also be closely watched by investors.
