Stocks Retreat on US-Iran Jitters
Stocks Retreat on US-Iran Jitters.
The S&P 500 Index ($SPX) (SPY) today is down -0.79%, the Dow Jones Industrial Average ($DOWI) (DIA) is down -1.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.61%. September E-mini S&P futures (ESU26) are down -0.77%, and September E-mini Nasdaq futures (NQU26) are down -0.60%.
Stock indexes are sliding today as crude oil prices and bond yields jumped after President Trump declared the ceasefire with Iran is over. Mr. Trump called the ceasefire "a waste of time" after the US launched strikes against Iran in response to attacks on ships transiting the Strait of Hormuz. The escalation of hostilities has prompted a flight from risk and some stock selling. Limiting losses in the broader market is today's strength in chipmakers and AI-infrastructure stocks, which are recovering some of Tuesday's sell-off.
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Stocks added to their losses today, and crude prices raced to their highs on comments from President Trump, who said the US will probably launch further strikes on Iran and could resume a blockade of the country's ports. The escalation of hostilities in the Middle East has pushed crude prices sharply higher to a 2-week high, boosting inflation expectations and sending bond yields higher. The 10-year T-note yield rose to a 1.5-month high of 4.59%.
US MBA mortgage applications fell -2.2% in the week ended July 3, with the purchase mortgage sub-index down -0.6% and the refinancing mortgage sub-index down -4.1%. The average 30-year fixed rate mortgage rose +1 bp to 6.58% from 6.57% in the prior week.
The outlook for strong Q2 earnings 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) surged more than +7% today to a 2-week high after the US launched strikes against more than 80 targets in Iran in response to Iran attacking commercial shipping in the Strait of Hormuz. Also, President Trump said the ceasefire with Iran is over, raising the prospect of renewed hostilities in the region that could disrupt energy supplies. The US late Tuesday also revoked the Iran oil waiver that allowed buyers to purchase and transport Iranian oil legally.
The markets are discounting a 33% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.
Overseas stock markets are lower today. The Euro Stoxx 50 fell to a 3.5-week low and is down -1.54%. China's Shanghai Composite slid to a 3.5-week low and closed down -0.49%. Japan's Nikkei-225 Stock Average dropped to a 3-week low and closed down -2.11%.
September 10-year T-notes (ZNU6) today are down -14 ticks, and the 10-year T-note yield is up +3.4 bp to 4.585%. Sep T-notes dropped to a 1.5-month low today, and the 10-year T-note yield rose to a 1.5-month high of 4.591%. Today's +7% surge in WTI crude oil prices to a 2-week high has boosted inflation expectations and undercut T-note prices. The 10-year breakeven inflation rate rose to a 2-week high of 2.277% today. Also, supply pressures are weighing on T-note prices as the Treasury will auction $39 billion of 10-year T-notes later today.
European government bond yields are moving higher today. The 10-year German bund yield rose to a 3.5-week high of 3.083% and is up +8.0 bp to 3.073%. The 10-year UK gilt yield jumped to a 1.5-month high of 4.961% and is up +10.6 bp to 4.954%.
ECB Governing Council member and Bundesbank President Joachim Nagel said he can't rule out another ECB interest rate increase due to the recent setback with Iran.
Swaps are discounting a 17% chance of a +25 bp ECB rate hike at its next policy meeting on July 23.
Homebuilders and building suppliers are under pressure today after the 10-year T-note yield jumped to a 1.5-month high, a negative factor for housing demand. Builders Firstsource (BLDR) is down more than -6%, and DR Horton (DHI) and Pulte Group (PHM) are down more than -4%. Also, Home Depot (HD), Lennar (LEN), and Toll Brothers (TOL) are down more than -3%, and KB Home (KBH) is down more than -2%.
Airline stocks and cruise line operators slid on Tuesday after WTI crude oil prices jumped by more than +7%. American Airlines Group (AAL) and Alaska Air Group (ALK) are down more than -5%, and Carnival (CCL) is down more than -4%. Also, Delta Air Lines (DAL), Norwegian Cruise Line Holdings (NCLH), and United Airlines Holdings (UAL) are down more than -3%.
Software stocks are sliding today, weighing on the broader market. Palantir Technologies (PLTR), Intuit (INTU), and Workday (WDAY) are down more than -4%, and Atlassian Corp (TEAM) and
ServiceNow (NOW) are down more than -3%. Also, Oracle (ORCL), Thomson Reuters (TRI), Autodesk (ADSK), and Salesforce (CRM) are down more than -2%, and Adobe Systems (ADBE) and Microsoft (MSFT) are down more than -1%.
