The S&P 500 Index ($SPX) (SPY) today isup +.07%, the Dow Jones Industrial Average ($DOWI) (DIA) is down -0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.44%.
Stocks initially retreated today after the US and Israel launched joint military attacks on Iran. President Trump said that combat operations could last for weeks until all objectives were completed. President Trump has called for Iran’s leaders to capitulate, but Iran’s security chief said that it has no intention of negotiating with the US.
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Stocks rebounded on dip buying and after the Feb ISM manufacturing index expanded more than expected. Also, the war in Iran is pushing defense stocks and energy producers higher today.
The war in Iran has sparked safe-haven demand for precious metals, with gold prices climbing to 1-month highs. Bond yields initially fell on news of a war with Iran on safe-haven demand, but have since risen, with the 10-year T-note yield up 10 bp to 4.04% amid concern that high oil prices will stoke faster inflation.
WTI crude oil soared more than +65% to an 8.25-month high as tanker traffic through the Strait of Hormuz, which runs along Iran’s coast and handles a fifth of the world’s oil, has largely halted after Iran attacked three oil tankers. Iran pumps about 3.3 million bpd, or about 3% of global output, but it is strategically important given its location along the Strait of Hormuz. Goldman Sachs estimates the real-time risk premium for crude oil at $18/bbl, corresponding to its estimate of the impact of a six-week full halt to tanker traffic in the Strait of Hormuz.
The US Feb ISM manufacturing index fell -0.2 to 52.4, stronger than expectations of 51.5. The Feb ISM prices paid sub-index rose +11.5 to a 3.5-year high of 70.5, stronger than expectations of 60.0.
Market focus this week will be on US-Iran war news, corporate earnings, and economic news. On Wednesday, the Feb ADP employment change is expected to increase by +40,000. Also, the Feb ISM services index is expected to slip by -0.3 to 53.5. In addition, the Fed releases its Beige Book. On Thursday, weekly initial unemployment claims are expected to increase by +3,000 to 215,000. Also, Q4 nonfarm productivity is expected to be up +1.8%, and Q4 unit labor costs are expected to be up +2.0%. On Friday, Feb nonfarm payrolls are expected to increase by +60,000, and the Feb unemployment rate is expected to remain unchanged at 4.3%. Also, Feb average hourly earnings are expected to increase by +0.3% m/m and +3.7% y/y. In addition, Feb retail sales are expected to fall -0.3% m/m and Feb retail sales ex-autos are expected to remain unchanged m/m.
Q4 earnings season is nearing its end, with more than 90% of the S&P 500 companies having reported earnings results. Earnings have been a positive factor for stocks, with 74% of the 472 S&P 500 companies that have reported beating expectations. According to Bloomberg Intelligence, S&P earnings growth is expected to climb by +8.4% in Q4, marking the tenth consecutive quarter of year-over-year growth. Excluding the Magnificent Seven megacap technology stocks, Q4 earnings are expected to increase by +4.6%.
The markets are discounting a 2% chance for a -25 bp rate cut at the next policy meeting on March 17-18.
Overseas stock markets are mixed today. The Euro Stoxx 50 fell to a 1.5-week low and is down -2.42%. China’s Shanghai Composite climbed to a 1.5-month high and closed up +0.47%. Japan’s Nikkei Stock 225 closed down -1.35%.
Interest Rates
June 10-year T-notes (ZNM6) today are down by -21 ticks. The 10-year T-note yield is up +10.5 bp to 4.042%. June T-notes fell from a contract high and turned lower, and the 10-year T-note yield rebounded from an 11.75-month low of 3.922% and moved higher. T-notes initially rallied today on increased safe-haven demand as stock index futures sold off after the US attacked Iran. However, T-notes gave up their gains and turned lower after WTI crude oil soared to an 8.25-month high, which raised inflation expectations, as the 10-year breakeven inflation rate rose to a 1-week high of 2.300%. Losses in T-notes accelerated today after the Feb ISM prices paid sub-index jumped to a 3.5-year high, signaling sticky price pressures.
European government bond yields are moving higher today. The 10-year German bund yield is up +6.5 bp to 2.708%. The 10-year UK gilt yield rose to a 1-week high of 4.383% and is up +14.1 bp to 4.374%.
German Jan retail sales fell -0.9% m/m, weaker than expectations of unchanged m/m and the biggest decline in 19 months.
Swaps are discounting a 1% chance of a -25 bp rate cut by the ECB at its next policy meeting on March 19.
US Stock Movers
Chipmakers and AI-infrastructure stocks are moving lower today, a negative factor for the overall market. Seagate Technology Holdings Plc is down more than -5% to lead losers in the Nasdaq 100. Also, Western Digital (STX), Advanced Micro Devices (AMD), and ARM Holdings Plc (ARM) are down more than -3%. In addition, NXP Semiconductors NV (NXPI), ASML Holding NV (ASML), and Qualcomm (QCOM) are down more than -2%. Finally, Applied Materials (AMAT), Intel (INTC), Broadcom (AVGO), Micron Technology (MU), and Texas Instruments (TXN) are down more than -1%,
Airline stocks are under pressure today as crude oil prices surged by more than +6% to an 8.25-month high, which will boost jet fuel prices and potentially cut into airlines’ profits. American Airlines Group (AAL) is down more than 45%, and United Airlines Holdings (UAL) is down more than -3%. Also, Delta Air Lines (DAL) and Southwest Airlines (LUV) are down more than -2%.
Cruise line operators are sliding today,