U.S. stock indices recovered from early losses on Monday, rebounding after Iran’s retaliatory strike on a U.S. base in Qatar was seen as measured and symbolic rather than escalatory. Though ballistic missiles were used, the attack was anticipated, caused no damage, and was interpreted by investors as a calculated response to the U.S. strikes on Iranian nuclear facilities earlier over the weekend.
President Donald Trump said he sees a “window for de-escalation,” highlighting the absence of U.S. casualties. Despite ongoing hostilities between Iran and Israel, the markets viewed the broader situation as having temporarily stabilized.
Oil Price Volatility and Stock Market Boost
WTI crude prices swung wildly, rising more than 6% overnight before plunging 7% during the day. Traders concluded that Iran's response was unlikely to significantly disrupt Middle East oil supplies.
Equities were further supported by stronger-than-expected macroeconomic data. The S&P manufacturing PMI held steady at 52.0, beating expectations, while existing home sales in May rose by 0.8%, defying forecasts for a decline.
Meanwhile, the yield on the U.S. 10-year Treasury note fell to 4.33%, a six-week low. This decline bolstered equities further, especially after dovish remarks from Fed officials Bowman and Goolsbee, who indicated support for a potential rate cut at the next FOMC meeting.
Geopolitical Tensions Still Loom
Iran has vowed continued retaliation, and its military declared it may target U.S. interests directly. While the strategically crucial Strait of Hormuz—through which about 20% of global crude and LNG trade passes—remains open, Iran’s parliament has called for its closure. Analysts at Kpler warned that even a temporary blockade could send oil prices soaring to $150 per barrel.
Key Economic Events Ahead
This week, investors will closely watch Fed Chair Jerome Powell’s semiannual testimony to Congress, June consumer confidence data from the Conference Board, new home sales numbers, Q1 GDP, and the Fed’s preferred inflation gauge—core PCE. The market currently prices in a 23% chance of a 25-basis-point rate cut at the July 29–30 FOMC meeting.
Global and Sector-Specific Movements
European indices posted mixed results Monday: the Euro Stoxx 50 fell 0.22%, the Shanghai Composite gained 0.65%, and Japan’s Nikkei dipped 0.13%.
In the U.S., homebuilder stocks (Toll Brothers, Lennar, PulteGroup, etc.) rose thanks to the decline in Treasury yields. Defense stocks (Northrop Grumman, General Dynamics, etc.) also gained amid the ongoing Middle East conflict.
Tesla surged over 8% after launching its limited robotaxi service in Austin, Texas. Northern Trust shares spiked on merger rumors involving BNY Mellon. Estee Lauder gained after Deutsche Bank upgraded the stock to “Buy,” and Circle Internet extended last week's rally on stablecoin legislation approval.
Conversely, energy stocks dropped sharply after oil’s reversal. Shares of APA, Halliburton, Schlumberger, and others fell as much as 7%. Super Micro Computer declined 9% after announcing a $2 billion convertible debt offering. Amgen dropped over 5% following concerns about side effects in its weight-loss drug trial.
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