Oil jumps, Wall Street retreats as Hormuz blockade reinstated
Stan Choe
While oil prices rose after weekend attacks in the Middle East, further losses for computer chip makers and other winners of the artificial intelligence boom are weighing on stock markets.
The barrel price of Brent crude oil, the international standard, rose by 7.8 percent to $81.92 after the United States and Iran said the Strait of Hormuz was under their control. Conflicts in the region have prevented oil tankers from using the strait to transport crude oil from the Persian Gulf to customers around the world, causing fuel prices to rise worldwide.
The price of Brent rose to $80 just after President Donald Trump said he would restart the blockade of Iranian ships in the strait. It also called for payment of 20 percent of all cargo sent this way to compensate the United States for costs incurred in providing protection in the region. But Brent’s price remains well below its wartime peak of around US$120 per barrel for its most actively traded contract.
On Wall Street, the S&P 500 fell 0.7 percent, its fourth weekly gain in the last five. In afternoon trading, the Dow Jones was down 121 points, or 0.2 percent, and the Nasdaq composite was 1.4 percent lower. The Australian share market is poised for a decline, with futures pointing to a decline of 7 points, or 0.1 per cent, at the open at 5.01am (AEST). The ASX rose on Monday. The Australian dollar was trading at 69.18¢.
Chip stocks like Micron Technology led the decline on Wall Street. Micron lost 4.9 percent, offsetting a spectacular 243.1 percent rise for the year so far. Real profits are behind the increase, as the influx of AI has led to increased demand for computer memory and other computing building blocks.
But concerns are growing that stock prices have become too high and that demand may not be sustainable if AI does not deliver as much profit and productivity as expected.
Nvidia fell 3.2 percent. It was the single most heavily weighted stock in the S&P 500 as it became the largest stock on Wall Street by value, thanks to enthusiasm for artificial intelligence.
The day’s losses started in Asia, where the South Korean Kospi index fell 8.9 percent. This included SK Hynix’s shares in Seoul falling 15.4 percent, their worst since they began trading in 1997.
The South Korean tech giant began trading its shares in the US on Friday, raising about US$26.5 billion ($38.3 billion). These shares rose 13.1 percent on their first day of trading but fell 5.7 percent on Monday.
Other areas of the AI industry fared slightly better, with shares of Taiwan Semiconductor Manufacturing Co. in Taiwan rising 1 percent. The chip maker said its revenue in June increased by nearly 68 percent compared to the previous year, and total revenue growth in the first half of the year increased to 35.6 percent compared to the previous year.
However, TSMC’s US-listed shares fell 2.3 percent.
Elsewhere, a group of 12 states has filed a lawsuit against Warner Bros., arguing that the blockbuster Hollywood deal will leave audiences with higher prices and fewer options for movies and television. Paramount sued Skydance to block its $110 billion bid to acquire Discovery.
The antitrust lawsuit, filed in California federal court, claims the deal would harm competition for movie distribution and licensing for cable TV channels. California and 11 other states with Democratic attorneys general have joined the fight, posing the biggest legal hurdle to a deal since the Trump administration reached an unconditional agreement in June.
“After this merger, States will pocket more than a quarter of every dollar generated by wide-release motion pictures and basic cable channels in this country,” States said in the complaint. “In short, this merger will create a media giant.”
Much of Wall Street’s attention this week will be earnings reports that tell how much companies earned in the spring. On Tuesday alone, Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs and Wells Fargo release their latest quarterly results.
Analysts predict that companies in the S&P 500 index will achieve overall growth of 23.6 percent compared to the previous year, according to FactSet. If they’re right, that would mean growth would be better than 20 percent for the second consecutive quarter.
Companies across industries will need to deliver strong growth to justify the big moves their stock prices make. The indexes are near records despite recent sharp fluctuations due to concerns about AI stocks.
Companies typically deliver results that meet top analysts’ expectations in 37 of the last 40 quarters, according to FactSet. If S&P 500 companies do so again by the usual margin, earnings growth in the latest quarter could be the best since 2021.
Treasury yields rose along with oil prices in the bond market. The yield on the 10-year Treasury note rose to 4.62 percent, from 4.56 percent at the end of Friday and from 3.97 percent before the war with Iran began.
Yields have risen around the world as oil remains expensive and concerns about higher inflation that could prompt the Fed and other central banks to raise interest rates. Higher rates may limit inflation, but they also slow the economy and hurt the prices of all kinds of investments.
In foreign stock markets, indices in Europe moved moderately.
In Asia, fluctuations were sharper, beyond the decline in South Korea. Stocks in Shanghai fell 2.1 percent and Japan’s Nikkei 225 index fell 1.9 percent.
