Stock markets experienced declines as geopolitical tensions between the US and Iran pushed oil prices higher, while investors awaited critical earnings reports from major tech companies. Brent crude futures settled at $89.22 per barrel after increasing by 1.3%, having previously touched $90. Meanwhile, US retail gasoline prices surpassed $4.00 a gallon. These oil price hikes are seen as a negative for stocks, increasing costs for both consumers and businesses.
The decline in markets was partly attributed to cautious investor positioning ahead of earnings releases, particularly from companies like Alphabet and Tesla, which are considered litmus tests for the AI trade. Peter Cardillo, chief market economist at Spartan Capital Securities, noted that while earnings provide a cushion, the uncertainty surrounding AI stock valuations made investors uneasy. The S&P 500 fell 0.19% to 7,443.28, the Dow Jones Industrial Average dropped 0.59% to 51,839.26, and the Nasdaq Composite decreased by 0.05% to 25,508.07.
Escalating conflict in the Middle East, including a declaration by Iranian President Masoud Pezeshkian of a "full-scale war" with the U.S. and Houthi rebel threats to blockade Saudi ports, fueled concerns about oil supply and broader economic stability. The 10-year US Treasury yield also rose by 5.68 basis points to 4.598% as traders weighed the impact of rising oil prices. Despite the overall market downturn, semiconductor stocks saw a rebound, with an index of semiconductors rising by 0.6% after entering a bear market on Friday.
Looking ahead, traders are closely watching for any signs of de-escalation in the Middle East, which could alleviate the oil risk premium. The earnings season is expected to provide insights into the AI-related trade, especially for chipmakers, and clarify the secondary effects of the conflict. However, a light US economic calendar and a Federal Reserve "blackout period" mean that market focus will remain heavily on geopolitical developments and corporate earnings.
