Wall Street seesaws, oil mixed, ASX set to steady
Stan Choe
US stocks are fluctuating again while oil prices remain high due to uncertainty about when the war with Iran may end.
The S&P 500 fell 0.1 percent in afternoon trading, marking its worst week since the start of the war with Iran. In afternoon trading, the Dow Jones rose 136 points, or 0.3 percent, while the Nasdaq composite fell 0.5 percent. The Australian share market will open higher, with futures opening at 4.55pm AEDT, pointing to a gain of 22 points, or 0.3 per cent. The ASX lost 0.7 per cent on Monday. The Australian dollar was trading at 68.58¢ at 5.20am AEDT.
This followed gains in equity markets across much of Europe, but caution was still prevalent in financial markets. After initially jumping to a 0.9 percent gain, the S&P 500 quickly erased almost all of it before drifting between small gains and losses.
Oil prices remain at the center of action on Wall Street. Brent, the international benchmark, was down 0.9 per cent to $111.69 per barrel at 5:07am AEDT, while US oil was up 3.4 per cent to $102.98.
The mixed moves follow violent actions in the war over the weekend, including the entry of Houthi rebels into the conflict in Yemen. The real issue for investors is whether oil and natural gas can maintain their full flow from the Persian Gulf to customers around the world and avoid a brutal burst of inflation.
Shortly before the US stock market opened for trading on Monday, President Donald Trump said on his social media network that “great progress has been made” with a “NEW, MORE REASONABLE REGIME to end our Military Operations in Iran.”
However, he also threatened the possibility of “blowing up and completely destroying” power plants in Iran if an agreement is not reached soon and the Strait of Hormuz, an important waterway for the flow of oil, is not immediately opened.
The statement fits and summarizes the pattern of last week, when Trump touted progress in talks and offered some optimism for the market, but then doubts quickly grew about whether the war would end soon.
Amid all this, some investors say they are giving Trump’s statements less weight than before. But stock prices are still cheaper than before the war, causing some investors to wait for the right time to buy.
The S&P 500 finished last week 8.7 percent below its all-time high set in January. The Dow and Nasdaq were more than 10 percent below their records; This is a steep enough decline that professional traders call it a “correction.”
If we take into account how much profit growth companies in the S&P 500 expect next year, the index looks 17 percent cheaper than it was before the war by one measure. That’s in a similar range to where previous growth fears for the market ended, unless it leads to a recession or the Federal Reserve raising interest rates, according to strategists at Morgan Stanley.
This is one of the signs that strategists led by Michael Wilson point to as “increasing evidence that the S&P 500 is approaching the final stages of its correction.”
Of course, the Federal Reserve might be upset if it decides that oil prices threaten to stay high long enough to raise interest rates. Higher interest rates will help control inflation, but will also slow the economy and drive down the prices of all types of investments.
Treasury yields have jumped in the bond market on such concerns since the war began, but retreated slightly on Monday.
The yield on the 10-year Treasury note fell to 4.34 percent from 4.44 percent on Friday. This is a significant move for the bond market and gives Wall Street some breathing room. However, it remains well above the pre-war level of 3.97 percent.
Loosening bond yields could particularly help the real estate sector. Not only do they lower borrowing costs, they also make real estate stocks that pay relatively high dividends look more attractive than bonds. Alexandria Real Estate, which owns mega campuses for life sciences companies across the country, rose 0.7 percent.
Alcoa rose 8.8 percent, one of the market’s biggest gainers, on speculation it could win more business following attacks that damaged rival aluminum plants in the Middle East over the weekend.
Sysco fell 15 percent after it said it would acquire Jetro Restaurant Depot for $21.6 billion in cash and enough Sysco stock to value the company at about $29.1 billion.
In stock markets abroad, FTSE 100 in London rose 1.6 percent and CAC 40 in Paris rose 0.9 percent. This was followed by a 3 percent decline in the Seoul Kospi, a 2.8 percent decline in the Tokyo Nikkei 225 and a 0.8 percent decline in the Hang Seng in Hong Kong.
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The Market Summary newsletter is a summary of the day’s transactions. Let’s each take ittoday afternoon.
