Stocks See Support on Speculation Iran's Retaliation Will Be Limited

The S&P 500 Index ($SPX) (SPY) today is up +0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.05%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.03%.  September E-mini S&P futures (ESU25) are up +0.20%, and September E-mini Nasdaq futures (NQU25) are up +0.14%. 

Stock index futures today are slightly higher on speculation that Iran's response to the US bombing of its nuclear sites is unlikely to significantly disrupt oil supplies from the Middle East.  WTI crude oil prices were up less than 1%, falling back from an overnight surge of more than +6% in initial reaction to the US strike on Iran's nuclear facilities. Today's stronger-than-expected June S&P US manufacturing report was also supportive for stocks.

The June S&P US manufacturing PMI was unchanged at 52.0, stronger than expectations of a decline to 51.0.

Stocks are being undercut by concern that the US strikes over the weekend on Iran's nuclear facilities could lead to an escalation of the Israel-Iran conflict.  Iran vowed retaliation and kept up attacks on Israel today, while Israeli forces kept up strikes on Iranian military sites and airports.  Iran's army command said the US has directly entered into war and should await "severe consequences" and that the Iranian army is "now free to take any action" against US interests.  President Trump said he would respond with "far greater" force to any Iranian retaliation on US assets.

So far, Iran has not tried to close the vital Strait of Hormuz, which handles about 20% of the world's daily crude shipments and also 20% of the world’s LNG shipments. However, Iran's parliament on Sunday called for the closure of the strait, although that cannot happen without approval from Supreme Leader Khamenei.  Energy research firm Kpler Ltd. said, "If Iran blocks the Strait of Hormuz, even for one day, oil can temporarily hit $120 to $150 a barrel, and if it attacks major oil production or export facilities in neighboring countries, it may drive up prices higher for longer."

The markets this week will focus on any retaliation by Iran for the US attacks of its nuclear facilities.  Also, any new tariff news or trade deals will be scrutinized.  Later today, May existing home sales are expected to fall -1.3% m/m to 3.95 million.  On Tuesday, the Conference Board June US consumer confidence index is expected to climb +1.8 to 99.8.  Also, Fed Chair Powell on Tuesday will testify before the House Committee on Financial Services for the Fed's semi-annual monetary policy report.  On Wednesday, Mr. Powell will testify before the Senate Banking Committee on monetary policy.  Also, on Wednesday, US Mar new home sales are expected to fall -6.7% m/m to 693,000.  On Thursday, Q1 GDP is expected to be unrevised at -0.2% (q/q annualized).  Also, weekly initial unemployment claims are expected to be unchanged at 245,000.  Friday brings May personal spending (expected +0.1% m/m) and May personal income (expected +0.3% m/m).  Also, the May core PCE price index, the Fed's preferred price gauge, is expected up +0.1% m/m and +2.6% y/y.  Finally, the revised June University of Michigan US consumer sentiment index is expected to fall -0.2 to 60.3. 

The markets are discounting the chances at 17% for a -25 bp rate cut at the July 29-30 FOMC meeting.

Overseas stock markets today are mixed.  The Euro Stoxx 50 is down by -0.40%.  China's Shanghai Composite closed up +0.65%.  Japan's Nikkei Stock 225 fell to a 1-week low and closed down -0.13%.

Interest Rates

September 10-year T-notes (ZNU25) today are up +7 ticks.  The 10-year T-note yield is down -3.6 bp to 4.340%.  T-notes today are moving higher as the weekend attacks by the US on Iran's nuclear facilities have escalated tensions in the Middle East and boosted safe-haven demand for government debt.  Rising inflation expectations are limiting gains in T-notes as the US 10-year breakeven inflation expectations rate rose to a 1-month high today of 2.37%.  Also, supply pressures are weighing on T-notes as the Treasury will auction $211 billion of T-notes and floating rate notes this week, beginning with Tuesday's $69 billion auction of 2-year T-notes.

European government bond yields today are moving lower.  The 10-year German bund yield is down -1.5 bp to 2.502%.  The 10-year UK gilt yield is down -3.2 bp to 4.505%.

The June S&P Global Eurozone manufacturing PMI was unchanged at 49.4, weaker than expectations of an increase to 49.7.  Also, the June S&P Eurozone composite PMI was unchanged at 50.2, weaker than expectations of an increase to 50.4.

ECB Governing Council member Centeno said, "The supply and demand conditions are still too weak in the Eurozone to allow a return to the 2% inflation target without further stimulus."

The June S&P UK manufacturing PMI rose +1.3 to a 5-month high of 47.7, stronger than expectations of 46.8.

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

Defense contractors are climbing today due to the escalation of the Israel-Iran conflict. Huntington Ingalls Industries (HII), Northrop Grumman (NOC), General Dynamics (GD), and L3Harris Technologies (LHX) are up more than +1%. 

Northern Trust (NTRS) is up more than +7% to lead gainers in the S&P 500 after the Wall Street Journal reported that Bank of New York Mellon approached the company to express interest in a possible merger.

Tesla (TSLA) is up more than +5% after launching its driverless taxi service to some riders in Austin, Texas.

Estee Lauder (EL) is up more than +4% after Deutsche Bank upgraded the stock to buy from hold with a price target of $95. 

Fiserv (FI) is up more than +3% after the Wall Street Journal reported the company plans to launch a stablecoin and platform for its clients. 

Circle Internet Group (CRCL) is up more than +3%, adding to last week's +65% surge after the US Senate passed stablecoin legislation setting up regulatory rules for cryptocurrencies pegged to the dollar. 

DoorDash (DASH) is up more than +2% after Raymond James upgraded the stock to strong buy from outperform with a price target of $26.

Advanced Micro Devices (AMD) is up more than +2% after Melius Research upgraded the stock to buy from hold with a price target of $175. 

Cruise line operators are under pressure as today's jump in crude prices to a 5-1/4 month high will boost fuel costs and eat into profits.  Norwegian Cruise Line Holdings (NCLH) is down more than -3%. Also, Carnival (CCL) and Royal Caribbean Cruises Ltd (RCL) are down more than -2%.

Super Micro Computer (SMCI) is down more than -5% to lead losers in the S&P 500 after announcing it plans to offer $2 billion of senior convertible notes due 2030. 

Equifax (EFX) is down more than -1% after Bank of America Global Research downgraded the stock to neutral from buy, saying they were underwhelmed by the company's investor day. 

Dow Inc (DOW) is down more than -1% after BMO Capital Markets downgraded the stock to underperform from market perform with a price target of $22. 

Earnings Reports (6/23/2025)

Commercial Metals Co (CMC), FactSet Research Systems Inc (FDS), KB Home (KBH).