Stocks fall as oil prices rise
Sometimes there’s only one story in the markets. This is one of those times.
Stocks fell and US oil prices rose Thursday as President Trump threatened fresh escalation in the US war against Iran unless the Strait of Hormuz was reopened. Additionally, Israel announced that an air strike killed an Iranian naval officer who, Israeli officials asserted, was “directly responsible” for the closure of the key energy choke point.
Markets bounced off their early morning lows as Iranian news agency Tasnim reported that Tehran had officially responded to the Trump administration’s 15-point proposal to stop the war, per Reuters. An Iranian official told Reuters that the proposal was “one-sided and unfair” and there was still no arrangement for negotiations, but that “diplomacy has not stopped” and a “path forward may still be found,” with Turkey and Pakistan engaged in diplomatic efforts between the US and Iran.
Stocks resumed their slide after Trump said in a televised Cabinet meeting that Iran needed to make a deal or the US would “just keep blowing them away,” per Reuters.
Almost a month into the war, we know the drill when oil prices are up. As benchmark US West Texas Intermediate crude oil futures climbed toward roughly $94 a barrel, US stocks (SPDR S&P 500 ETF) fell.
Yields on US government bonds, the foundation of all other interest rates, rose, suggesting that the market thinks rising oil prices boosts the risk of inflation and makes the Fed rate cuts investors were counting on just a few weeks ago less and less likely to appear any time soon. Gold prices (SPDR Gold Shares ETF) tumbled again.
There are times when the market broadly trades on what is effectively a single story. And with the three-month rolling correlations between the S&P 500 and WTI futures at roughly -0.90 — meaning basically stock prices are almost always going in the opposite direction of oil prices — that’s the situation traders and investors now find themselves in.
Under the hood of the S&P, energy stocks were the best performers, with refiners and marketers like Valero and Phillips 66 toward the top of the pack of stocks expected to benefit from higher oil prices. Natural gas producers APA Corporation, EOG Resources, and Diamondback Energy also posted healthy gains.
The communications technology sector was the worst performer early, led by a tumble in Meta shares and a lesser slide from Alphabet following Wednesday’s landmark decision by a Los Angeles jury that found the two tech giants liable for harms to children using their products.
Trendier stocks that have been on a tear related to expectations of a continued AI build-out were also taking a beating.
Memory stocks like Sandisk, Seagate Technology Holdings, and Western Digital fell for a second straight day after Google announced details of a new algorithm called TurboQuant that could lower the amount of memory needed for AI operations. Optics stocks like Ciena Corp. and Corning dove. Construction and engineering companies that have been feasting on the data center boom, like Quanta Services, Comfort Systems USA, and Emcor, dropped.
It wasn’t all bad for tech, however. The flight-to-software trade was back on as investors once again turned to beaten-down software stocks amid the wartime uncertainty, as their steady cash flows expected over the near term could overshadow the long-term concerns about their business models being disrupted by AI. Salesforce, Intuit, IBM, Adobe, and ServiceNow all rose.
