Stocks Rally on Hopes of De-Escalation of Hostilities in the Middle East

The S&P 500 Index ($SPX) (SPY) Monday closed up +0.96%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.89%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.06%.  September E-mini S&P futures (ESU25) are up +0.96%, and September E-mini Nasdaq futures (NQU25) are up +1.04%. 

Stock indexes recovered from early losses on Monday and rallied after a retaliatory attack by Iran on US bases in Qatar was seen as scripted and eased concerns about an escalation of the Israel-Iran conflict.  Iran launched a missile attack on a US air base in Qatar, but the attack was telegraphed and intercepted with no damage done to US assets and was seen as a controlled response to the US attack on Iran’s nuclear facilities over the weekend.  President Trump said he sees a chance of de-escalation in the Middle East conflict after Iran telegraphed its missile attack on the US base in Qatar, with no injuries or damage reported. 

WTI crude oil prices gave up an overnight surge of more than +6% and plunged -7% Monday afternoon 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. 

Stock indexes also found support Monday on better-than-expected US PMI and existing home sales reports.  In addition, the 10-year T-note yield sank to a 6-week low Monday to give stocks a boost on dovish Fed comments.  Fed Governor Bowman and Chicago Fed President Goolsbee said they would support a Fed rate cut at next month’s FOMC meeting.  The 10-year T-note yield fell -5 bp to 4.33%.

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

US May existing home sales unexpectedly rose +0.8% m/m to 4.03 million, versus expectations of a -1.3% m/m decline to 3.95 million. 

Fed Governor Bowman said, “Should inflation pressures remain constrained, I would support lowering the fed funds policy rate as soon as our next meeting in order to bring it closer to its neutral setting and to sustain a healthy labor market.”

Chicago Fed President Goolsbee said the Fed could resume interest rate cuts if the inflation hit from tariffs remains subdued.

Stock investors remain concerned 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 Monday, 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. Iran’s parliament on Sunday called for the closure of the strait, but 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 on its nuclear facilities.  Also, any new tariff news or trade deals will be scrutinized.  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 23% for a -25 bp rate cut at the July 29-30 FOMC meeting.

Overseas stock markets on Monday settled mixed.  The Euro Stoxx 50 closed down -0.22%.  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) Monday closed up +15 ticks.  The 10-year T-note yield fell -4.9 bp to 4.326%.  Sep T-notes on Monday rallied to a 6-week high and the 10-year T-note yield fell to a 6-week low of 4.289%.  T-mites moved higher Monday after the weekend attack by the US on Iran’s nuclear facilities escalated tensions in the Middle East and boosted safe-haven demand for government debt.  T-notes also found support Monday due to dovish comments from Fed Governor Bowman and Chicago Fed President Goolsbee, who said they would support a Fed rate cut at next month’s FOMC meeting.  Gains in T-notes accelerated on Monday afternoon as inflation expectations fell following a decline in crude prices of more than -7%. 

Gains in T-notes were limited due to Monday’s stronger-than-expected US economic reports, including the June S&P manufacturing PMI and May existing home sales. Also, supply pressures are negative for 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 on Monday moved lower.  The 10-year German bund yield fell -1.0 bp to 2.507%.  The 10-year UK gilt yield fell to a 1-week low of 4.486% and finished down -4.4 bp to 4.492%.

The June S&P 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

Homebuilders rallied Monday after the 10-year T-note yield fell to a 6-week low, a supportive factor for housing demand.  Toll Brothers (TOL) closed up more than +4%.  Also, Lennar (LEN), PulteGroup (PHM), and DR Horton (DHI) closed up more than +3%. 

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

Tesla (TSLA) closed up more than +8% to lead gainers in the S&P 500 and Nasdaq 100 after launching its driverless taxi service to some riders in Austin, Texas.

Northern Trust (NTRS) is up more than +8% after the Wall Street Journal reported that Bank of New York Mellon approached the company to express interest in a possible merger.

Estee Lauder (EL) closed up more than +5% after Deutsche Bank upgraded the stock to buy from hold with a price target of $95. 

Circle Internet Group (CRCL) closed up more than +9%, 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) closed up more than +4% after Raymond James upgraded the stock to strong buy from outperform with a price target of $26.

Fiserv (FI) closed up more than +4% after the Wall Street Journal reported the company plans to launch a stablecoin and platform for its clients. 

FactSet Research Systems (FDS) closed up more than +3% after forecasting full-year revenue of $2.31 billion-$2.33 billion, the midpoint above the consensus of $2.21 billion.

Energy stocks retreated on Monday after WTI crude gave up a +6% rally and plunged -7%.  APA Corp (APA) closed down more than -7%, Haliburton (HAL) closed down more than -6%, and Diamondback Energy (FANG) and Schlumberger (SLB) closed down more than -5%  Also, Devon Energy (DVN) closed down more than -4%, and Occidental Petroleum (OXY), ConocoPhillips (COP), Baker Hughes (BKR), and Phillips 66 (PSX) closed down more than -3%.  In addition, Exxon Mobil (XOM) and Valero Energy (VLO) close down more than -2%.

Super Micro Computer (SMCI) closed down more than -9% to lead losers in the S&P 500 after announcing its plans to offer $2 billion of senior convertible notes due 2030. 

Amgen (AMGN) closed down more than -5% to lead losers in the Dow Jones Industrials and Nasdaq 100 after it said adverse gastrointestinal events were common with a Phase 2 study of its weight loss drug, MariTide.

Dow Inc (DOW) closed down more than -3% after BMO Capital Markets downgraded the stock to underperform from market perform with a price target of $22. 

Earnings Reports (6/24/2025)

AeroVironment Inc (AVAV), Anterix Inc (ATEX), Borr Drilling Ltd (BORR), Carnival Corp (CCL), FedEx Corp (FDX), Gencor Industries Inc (GENC), NexPoint Diversified Real Estate Trust (NXDT), TD SYNNEX Corp (SNX), Worthington Enterprises Inc (WOR).