Stock Indexes Settle Higher as Geopolitical Risks Ease

Stock indexes settled higher on Friday, with the S&P 500 posting a 5-week high. Stocks turned higher on Friday after crude prices whipsawed lower when President Trump said US officials told Iran that the ceasefire is "over," but the US would continue peace talks with Iran. Easing geopolitical tensions also boosted stocks, following an American official who said talks between the US and Iran over a permanent peace deal are continuing, as the US remains committed to a diplomatic solution with Iran.

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Market sentiment also improved on Friday after South Korea's SK Hynix jumped more than +12% in its first day of trading in the Nasdaq 100, which helped chipmakers recover from early losses. Gains in stocks were limited on Friday amid weakness in cybersecurity stocks.

The outlook for strong Q2 earnings, which will begin to be released next week, is a bullish factor for stocks. Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by +23%, close to Q1's blowout earnings of +30%, which was more than double the +12% analysts had expected. AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2.

WTI crude oil (CLQ26) fell nearly -1% on Friday after an American official said talks between the US and Iran over a permanent peace deal are continuing, as the US remains committed to a diplomatic solution with Iran despite this week's hostilities. Also, Al Jazeera reported Friday that Qatar said it supports all efforts to defuse US-Iran tensions. Losses in crude were limited after Iran vowed to respond to the US attacks this week on Iran's rail and maritime infrastructure. On Wednesday, President Trump said the ceasefire with Iran is over, raising the prospect of persistent hostilities in the region that could disrupt energy supplies. The US on Tuesday also revoked the Iran oil waiver that allowed buyers to purchase and transport Iranian oil legally.

The markets are discounting a 32% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets settled mixed on Friday. The Euro Stoxx 50 closed down -0.23%. China's Shanghai Composite fell from a 1-week high and closed down -1.00%. Japan's Nikkei-225 Stock Average closed up +1.20%.

September 10-year T-notes (ZNU6) on Friday closed down -7.5 ticks, and the 10-year T-note yield rose +1.4 bp to 4.565%. T-notes moved lower on Friday after the S&P 500 rallied to a 5-week high, curbing safe-haven demand for government debt securities. Also, easing geopolitical risks reduced safe-haven demand for T-notes after President Trump said the US would continue peace negotiations with Iran.

Losses in T-notes were limited on Friday as crude oil prices fell nearly -1%, which lowered inflation expectations and is a supportive factor for T-notes. Also, bond dealer short covering boosted T-note prices, as dealers lifted short positions in T-notes that hedged this week's new Treasury supply of $119 billion in T-notes and T-bonds.

European government bond yields moved lower on Friday. The 10-year German bund yield fell -1.9 bp to 3.065%. The 10-year UK gilt yield fell -2.5 bp to 4.872%.

Italy May industrial production fell -0.3% m/m, weaker than expectations of -0.2% m/m and the biggest decline in 4 months.

Swaps are discounting a 12% chance of a +25 bp ECB rate hike at its next policy meeting on July 23.

The weakness in cybersecurity stocks weighed on the broader market. Okta (OKTA) closed down more than -6%, and CrowdStrike Holdings (CRWD) closed down more than -5% to lead losers in the Nasdaq 100. Also, Zscaler (ZS) closed down more than -4%, and Palo Alto Networks (PANW) and Fortinet (FTNT) closed down more than -3%. In addition, Cloudflare (NET) closed down more than -2%.

EquipmentShare.com (EQPT) closed up more than +17% after raising its full-year adjusted core Ebitda estimate to $1.95 billion to $2.06 billion from a previous estimate of $1.88 billion to $2.00 billion. The company also announced a $500 million share buyback program.