Stocks Pressured as Middle East Hostilities Boost Inflation Risks

The S&P 500 Index ($SPX) (SPY) on Monday closed down -0.19%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.04%.  September E-mini S&P futures (ESU26) fell -0.20%, and September E-mini Nasdaq futures (NQU26) rose +0.01%. 

Stock indexes on Monday settled mixed, with the Dow Jones Industrials falling to a 3-week low.  Stocks gave up early gains on Monday and settled mixed as rising crude oil prices boosted bond yields and undercut stocks.  Crude prices rose to a 5-week high on Monday amid concern the US-Iran conflict will worsen and lead to higher inflation.  The 10-year T-note yield rose +5 bp to 4.60%.

The Nasdaq 100 settled slightly higher on Monday as short covering emerged in chipmakers and AI-infrastructure stocks ahead of earnings results of megacap technology stocks this week, beginning with Alphabet on Wednesday.   

Geopolitical risks continue, as the US conducted a ninth straight day of airstrikes on Iran in an attempt to reopen the Strait of Hormuz, bombing military targets and communications networks.  Iran retaliated by launching drones and missiles at US bases in Kuwait, Jordan, Bahrain, and Iraq and attacking tankers transiting the Strait of Hormuz.  The New York Times reported on Monday that the US is sending more warplanes to the Middle East, including F-35 and F-16 fighter jets, a possible sign that US military operations could expand in the coming days.  Also, President Trump on Monday vowed Iran “will pay” for killing three US soldiers in recent days.

Signs that the conflict in the Middle East is widening weighed on market sentiment on Monday and supported crude oil after Houthi rebels said they will impose a maritime blockade on Saudi Arabia in retaliation for what they say is the kingdom's siege on the Yemeni capital, a potential threat to Saudi Arabian crude exports through the Red Sea.

WTI crude oil (CLQ26) prices erased their gains and briefly fell into negative territory on Monday after Iran said it wouldn't abandon diplomacy and that Qatar and Pakistan had reached out to mediate an end to the conflict, proposing a 10-day ceasefire between the US and Iran.  

The outlook for strong Q2 earnings, which begin in earnest this week, 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.   

The markets are discounting a 17% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets settled mixed on Monday.  The Euro Stoxx 50 closed down -0.06%.  China's Shanghai Composite recovered from a 10.5-month low and closed up +0.85%.  Japan's Nikkei-225 Stock Average did not trade, with Japanese markets closed on Monday for the Marine Day holiday.

Interest Rates

September 10-year T-notes (ZNU6) on Monday closed down -13 ticks, and the 10-year T-note yield rose +4.9 bp to 4.596%.  Sep T-notes were under pressure on Monday amid a rally in crude oil prices to a 5-week high, which boosted inflation expectations and is bearish for T-notes.  Losses in T-notes accelerated after President Trump, in a social media post, threatened a disproportionate response for any Americans killed by Iran. 

European government bond yields moved higher on Monday.  The 10-year German bund yield rose +2.4 bp to 3.150%.  The 10-year UK gilt yield rose +8.1 bp to 5.032%.

German Jun PPI fell -0.3% m/m and rose +1.8% y/y, right on expectations.

Swaps are discounting a 5% chance of a +25 bp ECB rate hike at its next policy meeting on Thursday.

US Stock Movers

Home builders and suppliers fell on Monday after the 10-year T-note yield rose by 5 bp to 4.60%, a negative factor for housing demand.  DR Horton (DHI), Pulte Group (PHM), KB Home (KBH), Toll Brothers (TOL), and Builders Firstsource (BLDR) closed down more than -2%.  Also, Lennar (LEN) and Home Depot (HD) closed down more than -1%.

Chipmakers and AI-infrastructure stocks moved higher on Monday.  The iShares Semiconductor ETF (SOXX) closed up +0.60%.  Marvell Technology (MRVL) closed up more than +3%, and Sandisk (SNDK), Intel (INTC), and Western Digital (WDC) closed up more than +2%.  Also, Advanced Micro Devices (AMD), Micron Technology (MU), Broadcom (AVGO), and Seagate Technology Holdings Plc (STX) closed up more than +1%. 

Cryptocurrency-exposed stocks rallied on Monday as Bitcoin (^BTCUSD) climbed to a 1-month high.  Galaxy Digital Holdings (GLXY) and MARA Holdings (MARA) closed up more than +9%, and Riot Platforms (RIOT) and Circle Internet Group (CRCL) closed up more than +8%.  Also, Strategy (MSTR) closed up more than +3%, and Coinbase Global (COIN) closed up more than +2%.

Penguin Solutions (PENG) closed down more than -11% after Barclays downgraded the stock to underweight from equal weight with a price target of $40. 

Warner Bros Discovery (WBD) closed down more than -3% after a federal judge temporarily paused Paramount Skydance Corp’s takeover of Warner Bros Discovery, saying it “likely” violates antitrust law. 

Truist Financial (TFC) closed down more than -2% after JPMorgan Chase downgraded the stock to underweight from neutral with a price target of $53.

Iren Ltd (IREN) closed up more than +19% after raising its year-end AI-cloud revenue estimate to more than $4 billion from a previous estimate of $3.7 billion.

Global Payments (GPN) closed up more than +5% to lead gainers in the S&P 500 after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $100. 

Lumentum Holdings (LITE) closed up more than +4% to lead gainers in the Nasdaq 100 after Barclays upgraded the stock to overweight from equal weight with a price target of $1,000.

LXP Industrial Trust (LXP) closed up +4% after Brookfield Asset Management and CPP Investments agreed to purchase the company for $5.2 billion, or about $61.20 per share. 

Nebius Group NV (NBIS) closed up more than +3% after Freedom Capital Markets upgraded the stock to buy from hold with a price target of $200.

Teradyne (TER) closed up more than +3% after UBS raised its price target on the stock to $500 from $440. 

Domino’s Pizza (DPZ) closed up more than +2% after reporting Q2 revenue of $1.19 billion, above the consensus of $1.18 billion.   

Urban Outfitters (URBN) closed up more than +2% after Goldman Sachs upgraded the stock to buy from neutral with a price target of $93. 

Earnings Reports(7/21/2026)

3M Co (MMM), Alaska Air Group Inc (ALK), Ally Financial Inc (ALLY), Annaly Capital Management Inc (NLY), Bank OZK (OZK), Capital One Financial Corp (COF), Charles Schwab Corp/The (SCHW), Chubb Ltd (CB), Danaher Corp (DHR), DR Horton Inc (DHI), East West Bancorp Inc (EWBC), EQT Corp (EQT), Equifax Inc (EFX), General Motors Co (GM), Genuine Parts Co (GPC), Halliburton Co (HAL), Hasbro Inc (HAS), Interactive Brokers Group Inc (IBKR), KeyCorp (KEY), Marsh & McLennan Cos Inc (MRSH), MSCI Inc (MSCI), Northrop Grumman Corp (NOC), Pegasystems Inc (PEGA), Range Resources Corp (RRC), Synchrony Financial (SYF), Valmont Industries Inc (VMI), Vicor Corp (VICR), Weatherford International PLC (WFRD), Webster Financial Corp (WBS), Western Alliance Bancorp (WAL).