U.S. stock indexes finished a mixed session on Wednesday, with the Dow Jones Industrial Average retreating to a 1.5-week low. The S&P 500 Index ($SPX) closed down -0.04%, the Dow Jones Industrial Average ($DOWI) fell -0.57%, and the Nasdaq 100 Index ($IUXX) managed a gain of +0.58%. June E-mini S&P futures (ESM26) saw a slight dip of -0.07%, while June E-mini Nasdaq futures (NQM26) advanced +0.50%.
Inflation Fears and Fed Commentary Weigh on Markets
Soaring crude oil prices fueled inflation expectations and pushed bond yields higher, creating headwinds for the stock market. West Texas Intermediate (WTI) crude oil surged to a three-week high following U.S. signals of an extended naval blockade of Iran. The Wall Street Journal reported that President Trump had instructed aides to prepare for a prolonged blockade, viewing it as less risky than resuming hostilities or abandoning the conflict without a deal on Iran’s nuclear activities.
The broader market faced pressure as three Federal Open Market Committee (FOMC) members dissented, advocating against an easing bias in the FOMC’s decision to maintain current policy. Hawkish remarks from Fed Chair Powell, who stated that a degree of monetary policy restraint is appropriate, also contributed to market sentiment. The 10-year Treasury note yield climbed 6 basis points to a one-month high of 4.41%.
Tech Sector Shows Resilience Ahead of Key Earnings
The Nasdaq 100 bucked the trend, moving higher as technology stocks rallied on indications of sustained demand for AI infrastructure. NXP Semiconductors NV (NXPI) led the charge, jumping over +25%, and Seagate Technology Holdings Plc (STX) rose more than +10%. These gains followed stronger-than-expected earnings reports from chipmakers and AI infrastructure companies.
Investors are keenly awaiting quarterly results from four of the ‘Magnificent Seven’ technology companies after Wednesday’s closing bell: Alphabet, Amazon, Microsoft, and Meta Platforms. These earnings reports are expected to provide crucial insights into the health of the tech sector and the broader economy.
Economic Data Offers Mixed Signals
Wednesday’s U.S. housing starts and core capital goods new orders reports offered some support for equities, exceeding expectations. U.S. MBA mortgage applications declined by -1.6% in the week ended April 24. The purchase mortgage sub-index saw a rise of +1.2%, while the refinancing sub-index fell by -4.4%. The average 30-year fixed mortgage rate edged up by 2 basis points to 6.37%.
In contrast, March housing starts unexpectedly increased by +10.8% month-over-month, reaching a 15-month high of 1.502 million, surpassing the anticipated decline to 1.380 million. However, March building permits, a forward-looking indicator for construction, decreased by -10.8% month-over-month to a seven-month low of 1.372 million, falling short of the expected 1.390 million.
March’s non-defense capital goods new orders excluding aircraft and parts, a proxy for capital spending, rose by a robust +3.3% month-over-month. This figure significantly exceeded the expected +0.5% and marked the largest increase in 5.75 years.
Geopolitical Tensions Drive Oil Prices Higher
WTI crude oil prices (CLM26) experienced a significant surge of over +6% on Wednesday, driven by escalating tensions between the U.S. and Iran over the Strait of Hormuz. The waterway, crucial for global energy transport, has been effectively closed since late February, threatening to exacerbate the global energy crisis. Approximately one-fifth of the world’s oil and liquefied natural gas transits through this strait.
Crude prices accelerated upwards after President Trump indicated to Axios that the naval blockade of Iran’s ports would persist until a deal addressing the country’s nuclear program is secured. Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by roughly 14.5 million barrels per day, or more than 50%, in April. The firm projects that current disruptions could deplete global crude stockpiles by nearly 500 million barrels, potentially reaching one billion barrels by June.
FOMC Stance and Future Rate Expectations
As anticipated, the FOMC maintained its federal funds target rate at 3.50% to 3.75%. The decision saw an 8-4 vote, with Fed Governor Miran dissenting in favor of a -25 basis point rate cut. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan expressed support for maintaining the rate range but did not favor including an easing bias in the statement at this time.
The post-meeting statement acknowledged that “Developments in the Middle East are contributing to a high level of uncertainty.” It also noted that “job gains have remained low, on average,” and the jobless rate “has been little changed in recent months, while inflation ‘is elevated, in part reflecting the recent increase in global energy prices.'”
Fed Chair Powell reiterated that policymakers believe the current policy stance is well-positioned to allow for observation, citing inflation’s persistent behavior and suggesting that “a little bit of restriction in monetary policy is the right place to be.”
In related news, Kevin Warsh secured a banking confirmation vote from the Senate Banking Committee, positioning him for potential confirmation as Fed Chair by the full Senate before Jerome Powell’s term concludes on May 15. Fed Chair Powell stated he would continue to serve as Fed Governor “for a period of time to be determined,” as his own Board of Governors seat does not expire until 2028.
Market participants are currently discounting a 0% probability for a +25 basis point FOMC rate cut or hike at the upcoming meeting on June 16-17.
Earnings Season Momentum
Earnings season is gaining momentum this week, with several ‘Magnificent Seven’ technology stocks scheduled to report. So far, earnings results have provided a supportive backdrop for the market. As of Wednesday, 81% of the 220 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. Excluding the technology sector, Q1 earnings are expected to grow by approximately +3%, marking the slowest pace in two years.
International Markets
Overseas stock markets presented a mixed picture on Wednesday. The Euro Stoxx 50 fell to a three-week low, closing down -0.34%. China’s Shanghai Composite Index concluded the session with a gain of +0.71%. Markets in Japan were closed for the Showa Day holiday.
Interest Rate Dynamics
June 10-year T-notes (ZNM6) closed down -16 ticks on Wednesday, with the 10-year T-note yield rising +5.5 basis points to 4.4010%. Jun T-notes reached a four-week low, and the 10-year T-note yield climbed to a one-month high of 4.430%. T-notes faced pressure amid rising crude oil prices, which boosted inflation expectations. The 10-year breakeven inflation rate reached a 14.5-month high of 2.479% on Wednesday. Stronger-than-expected U.S. economic reports on housing starts and core capital goods new orders also weighed on T-notes.
European government bond yields moved higher, with the 10-year German bund yield reaching a one-month high of 3.118% and finishing up +4.3 basis points at 3.110%. The 10-year UK gilt yield climbed to a one-month high of 5.078%, ending the day up +6.5 basis points at 5.071%. Eurozone April economic confidence fell -3.2 to a nearly 5.5-year low of 93.0, below expectations of 95.1. Eurozone March M3 money supply rose +3.2% year-over-year, slightly exceeding the expected +3.1%.
Swaps are currently pricing in a 12% chance of a +25 basis point European Central Bank (ECB) rate hike at its upcoming policy meeting on Thursday.
Notable Stock Movements
NXP Semiconductors NV (NXPI) closed up over +25%, leading chipmakers and AI infrastructure stocks higher after forecasting second-quarter revenue between $3.35 billion and $3.55 billion, surpassing the consensus estimate of $3.27 billion. Intel (INTC) gained over +12%, and Seagate Technology Holdings Plc (STX) rose +11% after projecting fourth-quarter adjusted earnings per share between $4.80 and $5.20, significantly exceeding the consensus of $3.96. Other semiconductor companies also saw gains, with SanDisk (SNDK) and Microchip Technology (MCHP) closing up more than +6%, and Western Digital (WDC) up over +5%. Advanced Micro Devices (AMD) and Qualcomm (QCOM) advanced more than +4%, while Micron Technology (MU) and Marvell Technology (MRVL) rose over +2%.
Energy producers and service providers rallied on Wednesday as WTI crude oil prices climbed over +6%. Phillips 66 (PSX) closed up more than +5%, while APA Corp (APA) and Valero Energy (VLO) gained over +4%. Marathon Petroleum (MPC), Occidental Petroleum (OXY), Devon Energy (DVN), and ConocoPhillips (COP) all rose more than +3%, with Diamondback Energy (FANG), Exxon Mobil (XOM), Halliburton (HAL), and Chevron (CVX) up over +2%.
Conversely, airlines and cruise line operators faced pressure due to the surge in crude oil prices.
The market’s mixed performance underscores the competing forces at play: robust AI demand and positive economic data on one side, countered by inflation concerns driven by rising energy prices and a more cautious tone from the Federal Reserve. All eyes remain on the upcoming megacap tech earnings reports for further direction.
