Global markets saw a significant uplift as US-Iran diplomacy appeared to progress, leading to a decline in oil prices and a revival in risk appetite. The S&P 500 rose by 1.6% and was hovering near a record, with megacap stocks climbing 4% and Amazon.com Inc.'s value exceeding $3 trillion. The Nasdaq 100 gained 1.9%, the Dow Jones Industrial Average rose 1.3%, and the MSCI World Index saw a 1.2% increase. This market movement was largely attributed to hopes of increased shipping through the Strait of Hormuz after President Donald Trump called off a planned attack on Iran.
Oil prices reacted sharply to the de-escalation, with US West Texas Intermediate crude falling 5.1% to settle around $80.36 a barrel, and Brent crude trading 5% lower at $83.47 a barrel after an earlier drop of 7.3%. This decline in oil prices helped alleviate inflation concerns and supported market sentiment. In the bond market, Treasury yields fell, with the 10-year Treasury yield declining five basis points to 4.69%, retreating from recent highs. Germany's 10-year yield also dropped five basis points to 3.15%, and Britain's 10-year yield decreased 10 basis points to 4.95%. Analysts noted that lower oil prices could act as a dampener on bond yields, which had risen sharply the previous week.
Beyond the geopolitical factors, strong economic data also contributed to the bullish sentiment. US manufacturing activity expanded in July at its fastest pace in over four years, driven by robust demand and increased production. Earnings forecasts remain positive, with Q2 earnings expected to increase by 23%, and 86% of S&P 500 companies that have reported Q2 earnings beating estimates. However, some analysts, like Chris Larkin at E*Trade, cautioned that the fluctuating nature of US-Iran diplomacy means upcoming earnings and jobs data will be crucial for sustained market gains. Others, like Ian Lyngen at BMO Capital Markets, highlighted that the geopolitical landscape is once again setting the agenda for the macro outlook and providing comfort for dip buyers.
