Stocks Settle Higher on Possible De-Escalation of Israel-Iran War

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.94%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.75%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.42%.  June E-mini S&P futures (ESM25) are up +1.00%, and June E-mini Nasdaq futures (NQM25) are up +1.38%. 

Stock indexes rallied on Monday and recovered most of last Friday's selloff on hopes that hostilities between Israel and Iran will remain contained and not escalate throughout the Middle East.  WTI crude oil prices gave up sharp overnight gains and finished lower Monday as the ongoing attacks have so far spared key oil export infrastructure in Iran.  There's also been no blockage of the vital Strait of Hormuz that handles about 20% of the world's daily crude shipments, although navigational signals from over 900 vessels moving through the strait have been disrupted due to "extreme jamming" of signals from the Iranian port of Bandar Abbas, causing confusion and increasing the risk of collisions.   

Gains in stocks accelerated Monday after the Wall Street Journal reported that Iran seeks an end to hostilities and wants a resumption of talks over its nuclear program. The Iranian government told Arab officials it would be open to return to the negotiating table as long as the US doesn't join the attack.  The Iranian government also sent messages to Israel saying it is in the interest of both sides to keep the violence contained.  However, Israeli Prime Minister Netanyahu has said the attacks will continue until Iran's nuclear program and ballistic missiles are destroyed, and he has shown no indication he is ready to stop.

Hostilities between Israel and Iran entered a fourth day on Monday with no signs of easing. Iran fired several waves of drones and missiles over the past 24 hours, while Israel continued hitting Tehran, killing more senior military officials. 

Monday's US economic news was negative for stocks after the June Empire manufacturing survey's general business conditions index unexpectedly fell from -6.8 to -16.0, weaker than the expected increase to -6.0.

Investors will be watching the G-7 meeting in a resort town near Banff, Canada, through Tuesday as President Trump meets with his counterparts due to the possibility of new trade or tariff developments.  Investors are also bracing for negative tariff news over the next few weeks, following President Trump's announcement last Wednesday that he intends to send letters to dozens of US trading partners within one to two weeks, setting unilateral tariffs ahead of the July 9 deadline that came with his 90-day pause. 

The markets will also be focused on Tuesday's May retail sales report (expected -0.6% m/m and +0.2% m/m ex-autos).  Also, on Tuesday, May manufacturing production is expected to rise +0.1% m/m, and the June NAHB housing market index is expected to climb to 36 from 34 in May.  The FOMC's 2-day meeting begins on Tuesday, and expectations are for the fed funds target range to remain unchanged at 4.25%-4.50%.   The markets will look to the Fed's dot-plot and post-meeting comments from Fed Chair Powell as to when the Fed may again ease policy.  On Wednesday, May housing starts are expected to fall -0.2% m/m to 1.359 million, and May building permits are expected to climb +0.2% m/m to 1.425 million.  Weekly initial unemployment claims will be released on Wednesday due to the Juneteenth holiday on Thursday and are expected to fall by -3,000 to 245,000. 

The markets are discounting the chances at 0% for a -25 bp rate cut at the Tue-Wed FOMC meeting.

Overseas stock markets on Monday settled higher.  The Euro Stoxx 50 closed up +0.93%.  China's Shanghai Composite closed up +0.35%.  Japan's Nikkei Stock 225 closed up +1.26%.

Interest Rates

September 10-year T-notes (ZNU25) Monday closed down -4 ticks.  The 10-year T-note yield rose by +5.7 bp to 4.456%.   T-notes on Monday moved lower after the sharp rebound in the equity market reduced safe-haven demand for Treasuries.  T-notes remained lower after the Wall Street Journal reported that Iran wanted to end hostilities. 

Losses in T-note prices were limited after crude oil prices gave up a 5% advance and turned lower, reducing inflation expectations.  Also, the unexpected decline in the US Jun Empire manufacturing survey of general business conditions index was bullish for T-notes.  Strong demand for the Treasury's $13 billion auction of 20-year T-bonds also supported T-notes as the auction had a bid-to-cover ratio of 2.68, above the 10-auction average of 2.55. 

European government bond yields on Monday moved lower.  The 10-year German bund yield fell -0.8 bp to 2.527%.  The 10-year UK gilt yield fell -1.7 bp to 4.533%.

Swaps are discounting the chances at 6% for a -25 bp rate cut by the ECB at the July 24 policy meeting.

US Stock Movers

Chip makers are rallying today and are supporting gains in the broader market.  Advanced Micro Devices (AMD) closed up more than +8% to lead gainers in the Nasdaq 100.  Also, ON Semiconductor Corp (ON) closed up more than +5%, and ARM Holdings Plc (ARM), Marvell Technology (MRVL), and Lam Research (LRCX) closed up more than +4%.  In addition, Micron Technology (MU) and Microchip  Technology (MCHP) closed up more than +3%, and Analog Devices (ADI), NXP Semiconductors NV (NXPI), Applied Materials (AMAT), Intel (INTC), GlobalFoundries (GFS), KLA Corp (KLAC), and Texas Instruments (TXN) closed up more than +2%.  

Travel and hotel stocks moved higher Monday as crude prices fell on news that Iran wants to end hostilities and restart talks over its nuclear program.  MGM Resorts International (MGM) closed up more than +8%, and Carnival Corp (CCL), United Airlines Holdings (UAL), and Las Vegas Sands (LVS) closed up more than +6%. Also, Delta Air Lines (DAL) and Wynn Resorts Ltd (WYNN) closed up more than +5%, and Norwegian Cruise Line Holdings (NCLH closed up more than +4%.  In addition, Ceasars Entertainment (CZR), Royal Caribbean Cruises Ltd (RCL), and Host Hotels & Resorts (HST) closed up more than +2%. 

Sage Therapeutics (SAGE) closed up more than +35% after agreeing to be acquired by Supernus in a deal worth up to $12 a share.

Roku Inc (ROKU) closed up more than +10% after announcing a partnership with Amazon.com that will allow advertisers to have access to more than 80% of US households with connected TV through the Amazon DSP marketing tool. 

US Steel (X) closed up more than +4% after Nippon Steel won conditional US approval for its $14.1 billion purchase of the company. 

Incyte (INCY) closed up more than +4% after reporting positive results of clinical data from two trials of its experimental therapy to treat a blood disorder.

Archer Aviation (ACHR) closed up more than +3% after CEO Goldstein said it expects defense-related sales to outstrip demand for commercial taxis in the short term.

Smurfit WestRock Plc (SW) closed up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $55. 

Defense stocks sold off Monday on news that Iran is seeking an end to hostilities with Israel.  Lockheed Martin (LMT) closed down more than -3% to lead losers in the S&P 500.  Also, Northrup Grumman (NOC) and L3Harris Technologies (LHX) closed down more than -3%.

Energy stocks and energy service providers declined on Monday as the price of WTI crude oil fell by more than 1%.  APA Corp (APA), Diamondback Energy (FANG), ConocoPhillips (COP), and Occidental Petroleum (OXY) closed down more than -2%.  Also, Devon Energy (DVN), Haliburton (HAL), and Schlumberger (SLB) closed down more than -1%.

Healthcare stocks were under pressure on Monday after CFRA downgraded the healthcare sector to underweight from market weight, citing elevated policy uncertainties. Molina Healthcare (MOH) and Elevance Health (ELV) closed down more than -2%.  Also, UnitedHealth Group (UNH) closed down more than -1%.

Sarepta Therapeutics (SRPT) closed down more than -42% after Piper Sandler and BMO Capital Markets downgraded the stock on news that a second patient had died after being treated with its gene therapy for a rare muscle disorder. 

Freshpet (FRPT) closed down more than -2% after UBS initiated coverage of the stock with a recommendation of sell and a price target of $65. 

Earnings Reports (6/17/2025)

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