Stocks Rise as Fear of All-Out Mideast War Eases: Markets Wrap

(Bloomberg) -- Relative calm returned to global markets, with stocks climbing and oil sinking alongside gold as fears subsided that Israel’s war against Iran would escalate into a wider conflict. News reports that Tehran wants to restart talks over nuclear programs also fueled risk-on sentiment.

Equities bounced after Friday’s slide, with the S&P 500 up about 1%. West Texas Intermediate crude slid 1.5%. As the haven bid ebbed, the dollar fell against most major currencies. Longer-maturity Treasuries continued to lag the market even after a $13 billion sale of 20-year bonds drew the expected yield level — a notable improvement from last month’s cheaper-than-expected sale of the tenor, which sparked a broad selloff.

President Donald Trump said Iran wants to talk about de-escalating the conflict with Israel even as the two sides exchanged deadly fire for the fourth straight day. Asked if the US would get more involved militarily, Trump said he didn’t want to discuss it.

Tehran is signaling it wants to de-escalate hostilities with Israel and is willing to resume nuclear talks with the US as long as Washington doesn’t join the Israeli attacks, the Wall Street Journal reported Monday citing Middle Eastern and European officials it didn’t identify. A similar report by Reuters says Iran conveyed the message through Qatar, Saudi Arabia and Oman.

The outbreak of hostilities between Israel and Iran disrupted the momentum that had driven the S&P 500 back near record levels. While markets initially adopted a cautious, risk-off stance to assess how the conflict might unfold, sentiment improved on Monday as investors speculated the attacks were unlikely to draw in more parties.

“Focus will remain on geopolitical headlines, but as long as the conflict stays limited between Israel and Iran, it’s unlikely to materially impact the markets,” said Tom Essaye at The Sevens Report.

“Markets got a reminder that tariffs aren’t the only potential source of market volatility,” said Chris Larkin at E*Trade from Morgan Stanley. “Right now, markets are signaling they expect the situation in the Middle East will remain contained, but any surprises could have an oversized impact on sentiment.”

The S&P 500 risks plunging if inflation spikes on the back of higher oil prices, according to a report by RBC Capital Markets strategists led by Lori Calvasina.

“The conflict has the potential to generate some additional angst about the health of the consumer, the broader economy, and the path of the Fed, a narrative shift that seems likely to be problematic for stock prices,” the strategists wrote in the note.

Meantime, the trading desk at JPMorgan Chase & Co. led by head of global market intelligence Andrew Tyler said potential pullbacks ahead would present buying opportunities.

They added that the bull case remains in place, assuming tariff relief in the longer term is still underway, but advised caution until there is more clarity on the US involvement in Middle East.

Israel launched an attack on the South Pars gas field, forcing the halt of a production platform, following strikes on Iran’s nuclear sites and military leadership last week. However, critical crude oil-exporting infrastructure has so far been spared and there’s been no blockage of the vital Strait of Hormuz.

While an attack on Iran’s gas production is a concern, the biggest fear for the oil market centers on Hormuz. Middle East producers ship about a fifth of the world’s daily output through the narrow waterway, and prices could soar further if Tehran attempts to disrupt shipments through the route.

Iran is prepared to deliver a “major blow” to Israel following its recent strikes on Iranian cities and targets, Iran’s semi-official Mehr News Agency reported, citing a senior security official.

Countdown to Fed

Tensions in the Middle East will only add to the conundrum that major central banks face as they assess risks to inflation and growth from tariffs and stop-start commerce flows.

Wall Street will mostly focus on the Federal Reserve decision Wednesday, with policymakers signaling an extended hold on rates. Investors will look to Chair Jerome Powell for clues on what might eventually prompt the central bank to make a move, and when.

“He may describe recent inflation developments as encouraging, but also downplay their relevance given uncertainty ahead due to tariffs, fiscal policy, and the recent spike in the oil price due to geopolitical developments,” said David Doyle at Macquarie Group. “On net, the risks to market pricing for 2025 lie in a hawkish direction post the communication.”

Meantime, central banks have been selling Treasuries since March, suggesting that they are diversifying away from dollar assets, according to Bank of America Corp.

Corporate Highlights:

• After a year and a half of government talks, countless regulatory hiccups and last-minute negotiations, Nippon Steel Corp. secured its much-wanted prize late last week when President Trump approved the $14.1 billion purchase of United States Steel Corp.
• Advanced Micro Devices Inc. joined a broad rally in semiconductor stocks as Piper Sandler said products unveiled last week were positive and expects a “snapback” for the GPU business in the fourth quarter.
• Meta Platforms Inc. will begin showing ads inside of its WhatsApp messaging service, opening a new potential revenue stream while the company invests heavily in artificial intelligence and other long-term projects.
• Boeing Co. said it’s made more progress in the past four to five months on the long-delayed new presidential aircraft than at any point in the last four years as it identifies ways to streamline the complex program.
• Roku Inc. and Amazon.com Inc.’s Amazon Ads announced a partnership, saying that advertisers will now have access to more than 80% of US households with connected TV though the Amazon DSP marketing tool.
• Warner Bros. Discovery Inc. said it won enough support from creditors to overhaul its debt as part of a plan to split into two separate companies, a significant victory for the entertainment giant as it tries to turn itself around.
• American Express Co. teased updates coming later this year to its travel-focused Platinum credit cards, announcing what it called its “largest investment ever” in a credit-card refresh.
• Sarepta Therapeutics Inc. reported a second patient died of acute liver failure while being treated with its gene therapy for a rare muscle disorder.
• Eaton Corp. agreed to buy defense and aerospace systems company Ultra Precision Control Systems from private equity firm Advent.msg

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.9% as of 2:08 p.m. New York time
• The Nasdaq 100 rose 1.4%
• The Dow Jones Industrial Average rose 0.8%
• The MSCI World Index rose 0.9%
• Bloomberg Magnificent 7 Total Return Index rose 1.4%
• The Russell 2000 Index rose 1.2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.1%
• The euro rose 0.3% to $1.1578
• The British pound rose 0.2% to $1.3596
• The Japanese yen fell 0.2% to 144.40 per dollar

Cryptocurrencies

• Bitcoin rose 3% to $107,896.08
• Ether rose 5.3% to $2,637.69

Bonds

• The yield on 10-year Treasuries advanced five basis points to 4.44%
• Germany’s 10-year yield was little changed at 2.53%
• Britain’s 10-year yield declined two basis points to 4.53%

Commodities

• West Texas Intermediate crude fell 1.7% to $71.72 a barrel
• Spot gold fell 1.2% to $3,391.33 an ounce

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