S&P 500 and Dow Jones Industrial Average Recovery
Wall Street’s reaction to the latest escalation in the Middle East proved remarkably brief. After a sharp sell-off on Wednesday, stocks staged a recovery on Thursday. The S&P 500 rose 0.8%, or 60.93 points to 7,543.64, fully recovering from its previous session losses. The Dow Jones Industrial Average added 139.02 points, or 0.3%, to reach 52,487.41, while the Nasdaq composite rallied 1.3%, or 336.24 points, to 26,206.89.
Market stability was supported by a decline in bond yields; the 10-year Treasury yield edged down to 4.54% from 4.56% late Wednesday. This cooling in the bond market provided a reprieve for equities, which had been under pressure from concerns that renewed conflict would keep energy prices high and force the Federal Reserve to maintain or increase interest rates. Despite the immediate market recovery, the CBOE Volatility Index (VIX) remained elevated above 18, a level that indicates heightened investor anxiety. Additionally, the CNN Fear & Greed Index spiked from 30 to 43 over the past week, putting it in the “Fear” range.
President Donald Trump’s Declaration on the Iran Ceasefire
Energy markets experienced significant turbulence this week. The U.S. launched more than 80 strikes on Iran midweek in response to Iranian attacks on ships moving through the Strait of Hormuz. At a NATO summit in Ankara, Turkey, President Donald Trump declared the ceasefire to be “over” and promised additional strikes on Iran. By Thursday, however, prices retreated as the market reassessed the scope of the conflict. Brent crude, the international standard, fell 2.2% to $76.30, down from $78.02 the previous day, though remaining above its $71.80 price from the end of last week.
The primary fear driving these swings is the potential for a blockade of the Strait of Hormuz, which would prevent the delivery of crude from the Persian Gulf to customers worldwide. Such a disruption could worsen inflation and force the Federal Reserve to raise interest rates. Meanwhile, the cost of gasoline has felt the impact of these shifts; according to the motor club AAA, the average price for a gallon of regular gasoline reached $3.85, a 68-cent increase from a year ago.
Micron Technology Expansion in New York
A resurgence in the artificial-intelligence sector played a pivotal role in cushioning the broader market against geopolitical jitters. Tech-heavy indexes benefited significantly from gains in chipmakers, which investors view as the primary beneficiaries of the ongoing AI boom. Micron Technology emerged as a standout, with its shares rising 4.5%. The company cited “surging demand for memory in the AI era” as it gave a progress update on construction in central New York of what it says is the largest semiconductor manufacturing site in U.S. history.
In South Korea, whose market is dominated by semiconductor companies, the Kospi index rose 0.6% after tumbling 5.3% the day before. SK Hynix, which is preparing to sell shares of its stock that will trade in the United States, jumped 5.3% in Seoul. This tech-led rally helped investors overlook broader concerns regarding the sustainability of AI-related productivity gains and the high valuations of these companies.
Edward Yardeni on Federal Reserve Rate Hike Probabilities
The path forward for interest rates remains the central concern for market analysts. According to market and economic analyst Edward Yardeni, inflation concerns are back in play and Fed rate hikes are looking much more likely. Futures traders are now pricing in a nearly 70% chance that the Federal Reserve will raise its benchmark interest rate at the September 15-16 meeting of its monetary policy committee. Just a month ago, they were pricing in a 40% chance of a hike at that meeting. Futures prices indicate a nearly 50% chance of two quarter-point hikes by the end of this year.
Market participants are now closely watching the upcoming earnings season. Next week, the biggest banks are set to unveil how much profit they made from April through June. Companies across industries will need to report strong growth to justify the big moves their stock prices have made. PepsiCo fell 3.3% even though it reported slightly better revenue for the latest quarter than analysts expected, as numbers showed weakening trends in its North American food and drinks businesses. In international markets, the Shanghai index rose 1.7% and Paris rose 0.9%, while Hong Kong’s Hang Seng slipped 0.7% as shares of Apple supplier Luxshare fell 1.5% in its trading debut.
