(April 6): US equities and crude oil prices edged higher as investors focus on signs of a potential diplomatic push toward a ceasefire in the Iran war.
President Donald Trump extended a deadline to Tuesday for Iran to reopen the Strait of Hormuz. While only a limited number of ships are reported to be passing through, the US, Iran and regional mediators are said to be discussing terms for a possible truce. The S&P 500 Index rose 0.2% as of 9:42am in New York, while the Nasdaq 100 advanced 0.4%.
Meanwhile, crude oil prices are slightly higher from Friday’s close. The Organization of the Petroleum Exporting Countries, or Opec+, warned Sunday that damage to Middle East energy infrastructure could have lasting effects on supply even after the conflict ends, as the group approved a largely symbolic increase in output quotas for next month.
Brent crude has gained almost 80% and WTI is up more than 90% since the start of the year. History suggests sustained oil shocks carry significant downside risks for equities. When crude prices surge more than 60% and remain elevated for several weeks, the S&P 500 Index has historically declined at least 20%, and sometimes more, according to data compiled by Matt Maley, chief market strategist at Miller Tabak + Co.
US stocks may be bottoming out, according to Morgan Stanley, which recommends starting to add exposure, especially in cyclical sectors and high-quality growth names. “We believe the S&P 500 is carving out a low and think it makes sense to start adding length in cyclical and quality growth trades where earnings remain strong, valuation has compressed, and sentiment is negative,” strategists including Michael Wilson wrote in a note.
Positioning data points to a tentative shift in sentiment. In the week through quarter-end Tuesday, institutional investors were moderate buyers of US equities, with flows at 1.2 standard deviations above average — the first net buying in five weeks — following heavier selling through much of March, according to Goldman Sachs Group Inc.’s trading desk.
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“We observed moderate global equity buying, strongest in US markets, led by hedge funds through a mix of new long positions and short covering,” Goldman’s Paul Leyzerovich wrote. Goldman traders anticipate systematic funds to buy about US$55 billion ($70.6 billion) of global equities over the next month, including about US$20 billion in US stocks.
From a technical perspective, the S&P 500 remains below its 50-, 100- and 200-day moving averages. BTIG’s Jonathan Krinsky noted that the index has also spent 10 consecutive trading days below its 200-day moving average while being within 7% of a 52-week high — a combination that has never occurred in the last 20 years.
“While many participants continue to look through the Middle East tensions assuming a swift move back to prior highs, the reality is we are lacking the fully oversold conditions that typically accompany a breach of the 200 DMA,” Krinsky wrote in a note Sunday. “We continue to see downside risk toward 6,000-6,150 as long as we remain below ~6,800 level.”
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Attention now turns to upcoming economic data, with the release of the March consumer price index on Friday. Economists expect a 1% monthly increase, which would mark the largest gain since 2022, following a roughly US$1-per-gallon rise in gasoline prices tied to the Iran conflict.
In individual stocks, Carvana Co shares fell after BofA Global Research downgraded the online used-car retailer to neutral from buy, citing recent macroeconomic and industry developments. Soleno Therapeutics Inc is higher after the Financial Times reported that Neurocrine Biosciences Inc is in advanced talks to acquire the company. Seagate Technology shares gained after Morgan Stanley raised its price target. And Netflix Inc shares rose after Goldman Sachs upgraded the streaming-video company to buy from neutral.
Elsewhere, Nvidia Corp partner Hon Hai Precision Industry Co, also known as Foxconn, reported a roughly 30% increase in quarterly sales, signaling continued strength in artificial intelligence demand. Meanwhile, OpenAI’s chief operating officer is shifting into a new role overseeing special projects and will report directly to chief executive officer Sam Altman.
Novo Nordisk A/S’ chief executive officer said the weight-loss drug market has huge upside and that the industry should focus on expanding access, in an interview with the Financial Times. And Paramount is in talks to secure about US$24 billion in signed equity commitments from three sovereign wealth funds to support its acquisition of Warner Bros Discovery, the Wall Street Journal reported.
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