Wall Street futures opened higher on Monday after announcements over the weekend that the United States and Iran would pause hostilities, a development that sent benchmark oil prices sharply lower and buoyed stocks tied to energy-sensitive activity.
Premarket action saw broad strength among companies whose revenues are sensitive to fuel costs. Major carriers were notable beneficiaries: Delta Air Lines and American Airlines climbed 2.6% and 3% respectively, while cruise lines Royal Caribbean and Carnival advanced 3.2% each.
The decline in crude undercut shares of large oil producers. Brent crude fell 6.3% to $90.6 a barrel, and energy names such as Occidental Petroleum and Exxon Mobil declined 3.8% and 2.6% respectively.
At 04:25 a.m. ET, futures pointed to solid gains for the major indexes: Dow E-minis were up 443 points, or 0.85%; S&P 500 E-minis were up 65 points, or 0.87%; and Nasdaq 100 E-minis were higher by 421.75 points, or 1.49%.
Futures tied to smaller, interest-rate-sensitive stocks also rose. Contracts tracking the Russell 2000 small-cap index gained 1.2%. Volatility eased slightly, with the CBOE Volatility Index dipping about 0.87 points to 17.7.
Despite the cease in direct exchanges between the United States and Iran, shipping traffic through the Strait of Hormuz remained subdued. Additional attacks by Yemen’s Iran-aligned Houthis on Saudi oil facilities along the Red Sea coast, a separate trade route important to global oil flows, continued to weigh on traders’ nerves.
Market participants were also focused on the Federal Reserve’s upcoming monetary policy decision later this week. The Fed has provided few new signals on its policy path since Kevin Warsh assumed the chair role, leaving uncertainty about interest rate direction. Investors currently price in at least 25 basis points of rate hikes this year, with LSEG-compiled data showing a 31% chance that a move could occur as soon as this week.
Technology names will face an earnings test this week as several of the so-called Magnificent Seven report results. Microsoft, Amazon.com and Meta were each up more than 1% in early trading, while Apple inched up about 0.3%. Chipmakers also saw gains: Marvell Technology rose 3.5%, Micron added 3.2% and Nvidia advanced 1.2%.
Market worries carried over from last week, when negative cash-flow reports from Alphabet and Tesla heightened concerns about debt-financed corporate spending on technology development. The tech-heavy Nasdaq remains roughly 8% below its record high. Separately, the Philadelphia SE Semiconductor Index met the criteria for a bear market in late June, confirming it has been at least 20% below its most recent peak since that time.
For context, indexes that close 10% below a recent record are commonly considered in a technical correction, while a decline of 20% or more is categorized as a bear market.
Key points
- Geopolitical pause between the United States and Iran sent Brent crude down 6.3% to $90.6 a barrel, lifting transport and leisure stocks while pressuring oil producers.
- Investors await the Federal Reserve policy decision later this week amid limited guidance since Kevin Warsh became chair; markets price in at least 25 basis points of hikes this year with a 31% chance of a move this week per LSEG data.
- Major tech earnings from Microsoft, Amazon.com, Meta and Apple will be closely watched and could influence the AI trade and broader market sentiment.
Risks and uncertainties
- Shipping through the Strait of Hormuz remains low and ongoing Houthi attacks on Red Sea oil infrastructure continue to pose disruption risks to global oil supply and trade routes, keeping energy markets and related equities vulnerable.
- Uncertainty about the Fed’s policy path, given sparse commentary since the leadership change, leaves interest-rate-sensitive sectors and small-cap stocks exposed to volatile repricing depending on the decision and future guidance.
- Corporate cash-flow concerns highlighted by recent reports from Alphabet and Tesla raise questions about leverage and spending on technology development, which could pressure tech and semiconductor equities if negative trends persist.