Stocks Weighed Down by Geopolitical Risks

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -0.28%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -1.09%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.27%.  September E-mini S&P futures (ESU26) fell -0.35%, and September E-mini Nasdaq futures (NQU26) rose +0.19%. 

Stock indexes settled mixed on Wednesday, with the Nasdaq recovering from a 3.5-week low.  The broader market was under pressure on Wednesday as crude oil prices and bond yields jumped after President Trump declared the ceasefire with Iran is over.  Mr. Trump called the ceasefire “a waste of time” after the US launched strikes against Iran in response to attacks on ships transiting the Strait of Hormuz. 

However, stock indexes recovered from their worst levels, with the Nasdaq 100 pushing into positive territory, amid strength in chipmakers and AI-infrastructure stocks, which recovered some of Tuesday’s sell-off.

Stocks fell to their lows on Wednesday, and crude prices raced to their highs on comments from President Trump, who said the US will probably launch further strikes on Iran and could resume a blockade of the country's ports. The escalation of hostilities in the Middle East pushed crude prices sharply higher to a 2-week high, boosting inflation expectations and sending bond yields higher.  The 10-year T-note yield rose to a 1.5-month high of 4.59% on Wednesday. 

The minutes of the June 16-17 FOMC meeting were hawkish and negative for stocks, as they stated that "Participants generally assessed that information received over the intermeeting period suggested that upside risks to price stability remained elevated while downside risks to achieving maximum employment had moderated a bit."

US MBA mortgage applications fell -2.2% in the week ended July 3, with the purchase mortgage sub-index down -0.6% and the refinancing mortgage sub-index down -4.1%.  The average 30-year fixed rate mortgage rose +1 bp to 6.58% from 6.57% in the prior week.

The outlook for strong Q2 earnings is a bullish factor for stocks. Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by +23%, close to Q1’s blowout earnings of +30%, which was more than double the +12% analysts had expected. AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2.   

WTI crude oil (CLQ26) surged more than +4% on Wednesday to a 2-week high after the US launched strikes against more than 80 targets in Iran in response to Iran attacking commercial shipping in the Strait of Hormuz.  Also, President Trump said the ceasefire with Iran is over, raising the prospect of renewed hostilities in the region that could disrupt energy supplies.  The US late Tuesday also revoked the Iran oil waiver that allowed buyers to purchase and transport Iranian oil legally.

The markets are discounting a 31% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets settled lower on Wednesday.  The Euro Stoxx 50 fell to a 3.5-week low and closed down -1.82%.  China's Shanghai Composite slid to a 3.5-week low and closed down -0.49%.  Japan's Nikkei-225 Stock Average dropped to a 3-week low and closed down -2.11%.

Interest Rates

September 10-year T-notes (ZNU6) on Wednesday closed down -10.5 ticks, and the 10-year T-note yield rose +2.4 bp to 4.575%.  Sep T-notes dropped to a 1.5-month low on Wednesday, and the 10-year T-note yield rose to a 1.5-month high of 4.595%.  Wednesday’s +4% surge in WTI crude oil to a 2-week high boosted inflation expectations and undercut T-note prices.  The 10-year breakeven inflation rate rose to a 2-week high of 2.280% on Wednesday.  Also, Wednesday’s hawkish minutes of the Jun 16-17 FOMC meeting weighed on T-note prices.

T-notes recovered from their worst level Wednesday afternoon on strong demand for the Treasury’s $39 billion auction of 10-year T-notes that had a bid-to-cover ratio of 2.59, well above the ten-auction average of 2.49.

European government bond yields moved higher on Wednesday.  The 10-year German bund yield rose to a 1.5-month high of 3.093% and finished up +9.9 bp to 3.092%.  The 10-year UK gilt yield jumped to a 1.5-month high of 4.981% and finished up +12.6 bp to 4.974%.

ECB Governing Council member and Bundesbank President Joachim Nagel said he can't rule out another ECB interest rate increase due to the recent setback with Iran. 

Swaps are discounting a 21% chance of a +25 bp ECB rate hike at its next policy meeting on July 23.

US Stock Movers

Homebuilders and building suppliers were under pressure on Wednesday after the 10-year T-note yield jumped to a 1.5-month high, a negative factor for housing demand.  Builders Firstsource (BLDR) and Pulte Group (PHM) closed down more than -5%, and DR Horton (DHI and Toll Brothers (TOL) closed down more than -4%.   Also, Lennar (LEN) and KB Home (KBH) closed down more than -3%, and Home Depot (HD) closed down more than -2%. 

Airline stocks and cruise line operators slid on Tuesday after WTI crude oil prices jumped by more than +7%.  American Airlines Group (AAL), Alaska Air Group (ALK), and Carnival (CCL) closed down more than -3%.  Also, Norwegian Cruise Line Holdings (NCLH) closed down by more than -2%, and United Airlines Holdings (UAL), Delta Air Lines (DAL), and Southwest Airlines (LUV) closed down by more than -1%.

Software stocks slid on Wednesday, weighing on the broader market.  Workday (WDAY) closed down more than -4%, and Intuit (INTU) and Atlassian Corp (TEAM) closed down more than -3%.  Also, ServiceNow (NOW), Thomson Reuters (TRI), and Autodesk (ADSK) closed down more than - 2%, and Salesforce (CRM), Microsoft (MSFT), and Palantir Technologies (PLTR) closed down more than -1%.

Energy producers and service providers rallied on Wednesday as crude oil prices jumped more than +4% to a 2-week high.  Valero Energy (VLO) closed up more than +6%, and Baker Hughes (BKR), Marathon Petroleum (MPC), and Phillips 66 (PSX) closed up more than +5%.  Also, Occidental Petroleum (OXY), APA Corp (APA), Halliburton (HAL), and Diamondback Energy (FANG) closed up more than +3%, and ConocoPhillips (COP), Devon Energy (DVN), and SLB Ltd (SLB) closed up more than +2%.

Chipmakers and AI infrastructure stocks are moving higher today, recovering some of Tuesday's sell-off.  The iShares Semiconductor ETF (SOXX) closed up more than +2%.  SanDisk (SNDK) closed up more than +6%, and Broadcom (AVGO) closed up more than +4%.  Also, Nvidia (NVDA) closed up more than +3% to lead gainers in the Dow Jones Industrials, and Seagate Technology Holdings NV (STX), Western Digital (WDC), and NXP Semiconductors NV (NXPI) closed up more than +3%.  In addition, KLA Corp (KLAC), Texas Instruments (TXN), and Lam Research (LRCX) closed up more than +2%.

Ollie's Bargain Outlet Holdings (OLLI) closed down more than -9% after JPMorgan Chase downgraded the stock to neutral from overweight.

Lemonade Inc (LMND) closed down more than -8% after Morgan Stanley downgraded the stock to equal weight from overweight with a price target of $75.

Bath & Body Works (BBWI) closed down more than -6% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $19.

Navitas Semiconductor (NVTS) closed down more than -4% after Wolfspeed filed a patent infringement lawsuit against the company, alleging that a broad range of Navitas products infringes multiple Wolfspeed patents. 

PayPal Holdings (PYPL) closed down more than -2% after Barclays initiated coverage on the stock with an underweight rating and a price target of $42. 

Terawulf (WULF) closed up more than +12% after Morgan Stanley raised its price target on the stock to $72 from $66.50 following the Anthropic lease deal.

Beazer Homes USA (BZH) closed up more than +12% after Dream Finders Homes said it has submitted an all-cash proposal to acquire the company for $32 a share.

Dell Technologies (DELL) closed up more than +3% after Evercore ISI raised its price target on the stock to $500 from $450. 

Earnings Reports(7/9/2026)

Immersion Corp (IMMR), Nurix Therapeutics Inc (NRIX), PepsiCo Inc (PEP), Simply Good Foods Co/The (SMPL), Simulations Plus Inc (SLP), WD-40 Co (WDFC).