Stocks Sharply Higher as US-Iran Peace Deal Eases Inflation Risks

The S&P 500 Index ($SPX) (SPY) on Thursday closed up +1.08%, the Dow Jones Industrial Average ($DOWI) (DIA) closed up +0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +2.48%.  September E-mini S&P futures (ESU26) rose +1.15%, and September E-mini Nasdaq futures (NQU26) rose +2.44%. 

Stock indexes settled sharply higher on Thursday as the US-Iran peace deal stoked optimism that the reopening of the Strait of Hormuz will ease inflation risks.  President Trump on Wednesday night signed a preliminary deal to end the US-Iran war, which sent crude oil prices to a 3.5-month low, eased inflation expectations, and sparked risk-on sentiment in asset markets.  The slump in crude prices has also pushed bond yields lower, as the 10-year T-note yield fell -4 bp to 4.45%. 

Chipmakers rallied on Thursday to lead the broader market higher, as Intel jumped more than +10% after President Trump said the chipmaker will work alongside Apple to design and produce semiconductors domestically.  On the negative side, IT service stocks retreated on Thursday, led by a -17% plunge in Accenture after its disappointing Q4 revenue forecast.  Also, Thursday’s decline in crude oil prices to a 3.5-month low weighed on energy-producing stocks.

Thursday’s US economic news was supportive of stocks after weekly initial unemployment claims fell -4,000 to 226,000, close to expectations of 225,000.  Also, the June Philadelphia Fed business outlook survey rose by +10.7 to 10.3, stronger than expectations of 10.0.

Stock market moves may have been exaggerated and more volatile than usual on Thursday due to the expiration of June options, futures, and derivatives during the quarterly event known as triple witching.  The event took place on Thursday, with US markets closed on Friday for the Juneteenth holiday.   

WTI crude oil prices (CLN26) fell to a new 3.5-month low on Thursday after President Trump signed a memorandum of understanding in Paris on Wednesday night, formally extending the US-Iran ceasefire for 60 days, allowing the Strait of Hormuz to reopen, and starting a further round of negotiations to permanently end the war.  The resumption of vessel traffic through the Strait of Hormuz could lead to the release of more than 100 oil-laden tankers stuck in the Persian Gulf, effectively adding to market stockpiles.  Goldman Sachs on Tuesday cut its price forecast on Brent crude to $80 a barrel in Q4 of this year, down from $90 a barrel, and said it expects Persian Gulf crude exports to return to pre-war levels by the end of July, one month earlier than previously expected. 

The markets are discounting a 36% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets settled mixed on Thursday.  The Euro Stoxx 50 climbed to a new record high and closed up +0.37%.  China's Shanghai Composite fell from a 3-week high and closed down -0.43%.  Japan’s Nikkei-225 Stock Average rallied to a new all-time high and closed up +1.65%.

Interest Rates

September 10-year T-notes (ZNU6) on Thursday closed up +2 ticks, and the 10-year T-note yield fell -3.6 bp to 4.451%.  T-notes were supported on Thursday from falling crude oil prices, which put downward pressure on inflation expectations.  WTI crude oil tumbled to a 3.5-month low on Thursday, knocking the 10-year inflation expectations rate down to a 6-month low of 2.218%. 

Gains in T-notes were limited amid Thursday’s rally in stocks, which curbed safe-haven demand for government debt securities.  T-notes also had some negative carryover from Wednesday, when the Fed raised its US 2026 core PCE estimate and projected higher interest rates later this year. 

European government bond yields moved higher on Thursday.  The 10-year German bund yield rose +0.2 bp to 2.929%.  The 10-year UK gilt yield rose +0.6 bp to 4.757%.

ECB Governing Council member Martin Kocher said consumer prices will remain higher for some time in the Eurozone despite an agreement to end the war in the Middle East, and that the ECB is ready to act at any time to ensure inflation returns to its 2% target.

The UK Apr ILO unemployment rate unexpectedly fell -0.1 to 4.9%, showing a stronger labor market than expectations of no change at 5.0%.

As expected, the BOE kept its official bank rate unchanged at 3.75% in a 7-2 vote and said it "stands ready to act" on inflation. BOE Governor Andrew Bailey said the recent fall in crude oil prices is "encouraging," but warned that "the situation remains unpredictable and there is clearly a risk that energy prices remain elevated for an extended duration."

Swaps are discounting a 17% chance of a +25 bp ECB rate hike at its next policy meeting on July 23.

US Stock Movers

Chipmakers rallied on Thursday, with the iShares Semiconductor ETF (SOXX) climbing more than +7% to a new record high.  Intel (INTC) closed up more than +10% after President Trump said the chipmaker will work alongside Apple to design and produce semiconductors domestically.  Also, Micron Technology (MU) and KLA Corp (KLAC) closed up more than +8%, and Marvell Technology (MRVL) closed up more than +7%.  In addition, Qualcomm (QCOM), Microchip Technology (MCHP), and Texas Instruments (TXN) closed up more than +6%, and Advanced Micro Devices (AMD) and NXP Semiconductors NV (NXPI) closed up more than +5%.  Finally, ARM Holdings Plc (ARM), Analog Devices (ADI), Applied Materials (AMAT), Lam Research (LRCX), and Broadcom (AVGO) closed up more than +4%. 

Power equipment companies moved higher on Thursday.  GE Vernova (GEV) closed up more than +6%, and Vertiv Holdings (VRT) closed up more than +5%.  Also, Caterpillar (CAT) closed up more than +3% to lead gainers in the Dow Jones Industrials, and Eaton Corp Plc (ETN) and Forgent Power Solutions (FPS) closed up more than +3%.

Airline stocks and cruise line operators moved higher on Thursday as WTI crude oil fell to a 3.5-month low, reducing fuel costs and boosting the companies' profitability prospects.  American Airlines Group (AAL), Royal Caribbean Cruises (RCL), Carnival (CCL), and Norwegian Cruise Line Holdings (NCLH) closed up more than +3%, and Alaska Air Group (ALK), Southwest Airlines (LUV), United Airlines Holdings (UAL), and Delta Air Lines (DAL) closed up more than +2%.

IT service stocks retreated on Thursday, led by a -17% plunge in Accenture (ACN), the S&P 500's leading loser, after it forecast Q4 revenue of $17.75-$18.40 billion, below the consensus of $18.47 billion.   The lower revenue forecast exacerbated concerns that consultants such as Accenture could be hit hard by AI in the coming years.  Also, Huron Consulting Group (HURN) closed down more than -14%, and Cognizant Technology Solutions (CTSH) closed down more than -10% to lead the Nasdaq 100 losers.  In addition, Globant SA (GLOB) closed down more than -10%, and International Business Machines (IBM) closed down more than -5% to lead the Dow Jones Industrials' losers. 

Energy producers and service providers moved lower on Thursday after WTI Crude oil fell to a 3.5-month low. SLB Ltd (SLB) closed down more than -4%, and ConocoPhillips (COP) and Halliburton (HAL) closed down more than -3%.  Also, APA Corp (APA), Chevron (CVX), Exxon Mobil (XOM), and Occidental Petroleum (OXY) closed down more than -2%.  In addition, Baker Hughes (BKR), Diamondback Energy (FANG), Devon Energy (DVN), and Valero Energy (VLO) closed down more than -1%.

Centrus Energy (LEU) closed up more than +13% after signing a letter of intent for it to supply domestic high-assay low-enriched uranium to Oklo to power up to five of Oklo’s Aurora powerhouses for multiple years. 

Talen Energy (TLN) closed up more than +7% after Goldman Sachs initiated coverage on the stock with a recommendation of buy and a price target of $499. 

Integra LifeSciences Holdings (IART) closed up more than +2% after Argus upgraded the stock to buy from hold with a price target of $25.   

Novocure Ltd (NVCR) closed down more than -19% after announcing its Phae 3 TRIDENT trial, which tested earlier initiation of Tumor Treating Fields therapy in newly diagnosed glioblastoma patients compared to later initiation, did not meet its primary endpoint. 

Kroger (KR) closed down more than -7% after reporting Q1 adjusted EPS of $1.58, below the consensus of $1.59, and forecasting 2027 adjusted EPS of $5.10 to $5.30, the midpoint weaker than the consensus of $5.23. 

Steel Dynamics (STLD) closed down more than -6% after forecasting Q2 EPS of $3.51 to $3.55, well below the consensus of $4.16. 

FactSet Research Systems (FDS) closed down more than -2% after Rothschild & Co downgraded the stock to sell from neutral with a price target of $215.

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Lifezone Metals Ltd (LZM) and Outdoor Holding Co (POWW).