Stocks Settle Sharply Higher as Crude Oil Slumps

The S&P 500 Index ($SPX) (SPY) on Monday closed up +1.01%, the Dow Jones Industrial Average ($DOWI) (DIA) closed up +0.83%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.13%.  March E-mini S&P futures (ESH26) rose +1.04%, and March E-mini Nasdaq futures (NQH26) rose +1.15%.

Stocks settled sharply higher on Monday, supported by lower crude oil prices and falling bond yields.  Crude prices fell more than -5% after several oil tankers managed to move through the Strait of Hormuz over the weekend, raising hopes that the waterway could soon reopen.  India is attempting to get six other vessels through the strait, while a number of other countries are trying back channels to Iran to ensure safe passage for their ships. The slump in crude prices has knocked the 10-year T-note yield down -6 bp on Monday to 4.22%.

The war with Iran is in its seventeenth day with no end in sight. The US hit military sites over the weekend on Kharg Island, from which Iran exports almost all of its oil.  Meanwhile, Iran launched fresh attacks across the Persian Gulf, disrupting shipments at a key United Arab Emirates oil hub and halting flights at Dubai’s airport.

President Trump said the US is talking to Tehran but that he’s not sure if the Iranians are “ready.”  Iranian Foreign Minister Abbas Araghchi said that Iran hadn’t asked for talks or a ceasefire.  President Trump said that he is “demanding” that other countries contribute to the defense of the Strait of Hormuz and that NATO would face a “very bad” future if member states failed to help in Hormuz.  

Crude oil prices remain high despite attempts to boost global supplies. The IEA last Wednesday released 400 million barrels from emergency oil stockpiles and said the war against Iran is disrupting 7.5% of global oil supply, and the conflict will cut global oil supply by 8 million bpd this month.  The closure of the Strait of Hormuz, through which about a fifth of the world’s oil and natural gas flows, has choked off oil and gas flows due to Iran’s attacks on shipping in the waterway and forced Gulf producers to cut output because they can’t export from the region.  Goldman Sachs warns that crude prices could exceed the 2008 record high of close to $150 a barrel if flows through the Strait of Hormuz remain depressed through March.

Monday’s US economic news was mixed for stocks.  On the positive side, Feb manufacturing production rose +0.2% m/m, slightly stronger than expectations of +0.1% m/m, and Jan manufacturing production was revised upward to +0.8% m/m from the previously reported +0.6% m/m.  Also, the Mar NAHB housing market index rose +1 to 38, stronger than the expectations of 37. Conversely, the Feb Empire manufacturing survey of general business conditions fell -7.3 points to -0.2, weaker than expectations of 3.9.

Economic news from China was mixed for global growth prospects. On the positive side, China's Feb industrial production rose +6.3% year-to-date y/y, stronger than expectations of +5.3%.  Also, China's Feb retail sales rose +2.8% year-to-date y/y, stronger than expectations of +2.5%.  Conversely, the China Feb surveyed jobless rate rose +0.2 to 5.3%, showing a weaker labor market than expectations of 5.1%.  Also, China's Feb new home prices fell -0.28% m/m, marking the 33rd consecutive month home prices have declined.

The markets are discounting a 1% chance for a -25 bp FOMC rate cut at the Tue/Wed policy meeting.

Overseas stock markets settled mixed on Monday.  The Euro Stoxx 50 closed up +0.39%.  China's Shanghai Composite fell to a 6-week low and closed down -0.26%.  Japan's Nikkei Stock 225 closed down -0.13%.

Interest Rates

June 10-year T-notes (ZNM6) on Monday closed up by +15.5 ticks.  The 10-year T-note yield fell -5.7 bp to 4.220%.  T-note prices are garnering support from lower crude oil prices, which are down by more than -4% today, easing inflationary fears.  Also, concerns that the recent surge in crude prices to a 3.75-year high will weigh on global economic growth prospects are supportive for T-notes. Monday’s US economic news was mixed for T-note prices after the Feb Empire manufacturing survey general business conditions index fell more than expected, but Feb manufacturing production and the Mar NAHB housing market index rose more than expected.

European government bond yields moved lower on Monday.  The 10-year German bund yield fell -3.1 bp to 2.952%.  The 10-year UK gilt yield fell -5.3 bp to 4.770%.

Swaps are discounting a 3% chance of a -25 bp ECB rate hike at its next policy meeting this Thursday.

US Stock Movers

Meta Platforms (META) closed up more than +2% to lead the Magnificent Seven technology stocks higher after Reuters reported that the company is planning layoffs that could affect 20% or more of the company.  Also, Amazon.com (AMZN), Tesla (TSLA), Nvidia (NVDA), Alphabet (GOOGL), Apple (AAPL), and Microsoft (MSFT) closed up more than +1%. 

Chip stocks and AI-infrastructure companies rallied on Monday, a supportive factor for the broader market. Sandisk (SNDK) closed up more than +5%, and ARM Holdings Plc (ARM) and Western Digital (WDC) closed up more than +4%.  Also, Seagate Technology Holdings Plc (STX), Marvell Technology (MRVL), Lam Research (LRCX), and Micron Technology (MU) closed up more than +3%.  In addition, Microchip Technology (MCHP) and ASML Holding NV (ASML) closed up more than +2%. 

Cryptocurrency-exposed stocks rose on Monday as Bitcoin (^BTCUSD) climbed more than +3% at a 6-week high.  Strategy (MSTR) closed up more than +5% to lead gainers in the Nasdaq 100.  Also, Galaxy Digital Holdings (GLXY) and Coinbase Global (COIN) closed up more than +3%.  In addition, Riot Platforms (RIOT) closed up more than +2%. 

Airline stocks and cruise line operators rallied on Monday as crude prices sank by more than -5%, lowering fuel costs and boosting earnings prospects.  Norwegian Cruise Line Holdings (NCLH) closed up more than +5%, and United Airlines Holdings (UAL) closed up more than +4%.  Also, Royal Caribbean Cruises Ltd (RCL), Carnival (CCL), Delta Air Lines (DAL), and Southwest Airlines (LUV) closed up more than +3%, and American Airlines Group (AAL) and Alaska Air Group (ALK) closed up more than +1%. 

Fertilizer stocks were under pressure on Monday, giving back some of last week’s sharp gains. Intrepid Potash (IPI) closed down more than -8%, and Mosaic (MOS) closed down more than -5% to lead losers in the S&P 500.  Also,CF Industries Holdings (CF) closed down more than -5%.

National Storage Affiliates (NSA) closed up more than +30% after Public Storage acquired the company for about $10.5 billion, or $41.68 per share.  Public Storage (PSA) is down more than -2% after news of the acquisition. 

Circle Internet Group (CRCL) closed up more than +8% after Clear Street LLC upgraded the stock to buy from hold with a price target of $136.

Dollar Tree (DLTR) closed up more than +6% after the company said in a conference call that it saw an improvement in traffic in its stores in Q1 from Q4, and it’s pleased with traffic to date. 

Upstart Holdings (UPST) closed up more than +5% after BTIG LLC upgraded the stock to buy from neutral with a price target of $43. 

CoreWeave (CRWV) closed up more than +5% after announcing a collaboration with Cerebras Systems and BCE Inc. on a 300-megawatt data center in Saskatchewan. 

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