US stocks are climbing, and oil prices are falling after President Donald Trump called off his threat to bomb Iran in the evening.
The S&P 500 jumped 1.3%, coming off a back-to-back drop that had yanked it back to where it was in early May. The Dow Jones Industrial Average was up 802 points, or 1.6%, as of 2pm Eastern time, and the Nasdaq composite was 1.8% higher.
Stocks leapt immediately after Trump said on his social media network that “discussions with the Islamic Republic of Iran have been brought to the highest level of Iranian leadership and approved” and that the time and place of a signing will “be announced shortly”.
A deal to end the war with Iran could reopen the Strait of Hormuz and allow oil tankers to carry crude again from the Persian Gulf to customers worldwide. Hopes that the global flow of oil can get going again sent the price for a barrel of benchmark US crude down 2.8% to US$87.56. Brent crude, the international standard, fell 3.5% to US$89.84 per barrel, though it’s still above its roughly US$70 price from before the war.
Worries had been high because the United States and Iran launched attacks over the past several days, threatening a more than monthlong tenuous ceasefire.
High oil prices caused by the Iran war have sent inflation painfully upward, and a report on Thursday showed that prices at the US wholesale level increased by more in May than economists expected. The effect is worldwide, and the European Central Bank on Thursday became the first major central bank to raise interest rates in response.
Higher rates can keep a lid on inflation. But they also simultaneously slow entire economies and undercut prices for all kinds of investments, including stocks and cryptocurrencies. They hit investments seen as the most expensive in particular, and some critics are calling the artificial-intelligence industry a bubble where investment inflated too far.
Big swings for AI stocks have been yanking the US stock market in their wake over the last week, and they were a bigger factor for Wall Street than the war with Iran as they went from roaring to records to suddenly turning lower. The big concern is whether such stocks shot too high, too fast because of AI mania, and their careening moves have sometimes reversed direction hour by hour.
AI stocks had already been rolling back up their roller coaster early Thursday (local time), before Trump made his announcement on Iran.
Marvell Technology climbed 6.3%. It’s coming off a manic stretch where it plunged 16.7%, soared 9.6% and then fell more than 5% for two straight days. Just before that, it had a one-day surge of 32.5% that was its best in history when Nvidia CEO Jensen Huang suggested it could be “the next trillion-dollar company”. It was worth a bit more than US$190 billion at the time.
Companies involved in the making of chips, meanwhile, jumped to some of the market's biggest gains. Lam Research jumped 10.7%, and KLA climbed 11%.
That helped offset a drop of 11% for Oracle. It reported a stronger profit for the latest quarter than analysts expected, but it also said it expects to raise US$40 billion in cash this fiscal year through borrowing and sales of its stock. That comes after it raised US$48 billion last fiscal year to help pay for AI investments.
Other companies’ stocks have also been punished recently for announcing heavy spending on AI, as the question remains whether all the investment can produce the profits and productivity that AI proponents are promising.
In the bond market, the yield on the 10-year Treasury eased to 4.48% from 4.55% late Wednesday as falling oil prices meant less upward pressure on inflation.
A sustained drop in oil prices could allow the Federal Reserve to keep its main interest rate on hold this year, instead of hiking it as many traders suspected it may have to because of high inflation and a solid US job market. Following Trump's announcement, traders ratcheted back their bets for a possible increase to the federal funds rate this year, according to data from CME Group.
Stocks of smaller companies can feel the biggest benefit from easier interest rates because many need to borrow cash to grow, and the Russell 2000 index of the smallest US stocks jumped a market-leading 2.6%.
In stock markets abroad, indexes rose modestly in Europe following a mixed finish in Asia.
London’s FTSE 100 rose 0.5%, and Hong Kong’s Hang Seng fell 0.7% for two of the world’s bigger moves.
The morning's headlines in 90 seconds, including Trump flipflops on Iran attack, and a shark attack caught on camera. (Source: 1News)
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