Stocks were mostly flat following a recent rally driven by artificial intelligence advancements, as market attention shifted to diplomatic efforts concerning the US-Iran conflict and its impact on oil prices. The S&P 500 futures were unchanged after an earlier rise led by tech giants and chipmakers, which had pushed the index to a one-month high. Brent crude, a key indicator, showed significant volatility, first falling towards $98 a barrel after reports of Iran's proposal to reopen Hormuz if the US blockade is lifted, but later climbing above $101 a barrel, ultimately settling around $99.25, down 1.1% on the day.
The renewed decline in oil prices initially eased concerns about inflationary pressures from high energy costs, causing Treasury yields to dip, with the 10-year rate falling two basis points to 4.93%. However, this sentiment was fragile, as later increases in oil prices reignited caution about macroeconomic risks. AI-linked stocks experienced mixed reactions; while Meta Platforms Inc.'s new AI agent initially fueled broad gains, the exuberance soon fizzled. Microsoft Corp. rose 0.9% in premarket trading, leading gains among the Magnificent Seven, but an ETF tracking chipmakers was slightly lower.
Analysts highlighted the critical role of geopolitics this week, particularly any progress towards a ceasefire between the US and Iran. Tom Essaye at The Sevens Report suggested that confirmation of such progress would likely lead to further drops in oil and yields, and a rally in stocks. David Kruk from La Financiere de l'Echiquier noted that investors were unlikely to short tech and AI stocks before the third-quarter earnings season, also expressing hope that President Trump might find a way to lower oil prices before the midterms. However, Karen Georges at Ecofi pointed out that while Meta's AI news was specific, it didn't fundamentally change the broader AI narrative or concerns about hyperscalers' capital expenditures, and rising oil prices could further fuel caution.
The overall market sentiment remained highly sensitive to the US-Iran conflict and its effects on crude oil. West Texas Intermediate (WTI) crude fell 2.6% to $93.28 a barrel, while spot gold dropped 0.5% to $4,321.83 an ounce. The fluctuating oil prices and geopolitical tensions underscored how quickly market confidence could shift, despite the strong performance of tech stocks. Bond yields remained near multi-year highs as investors anticipated further interest rate hikes and persistent fiscal shortfalls.
