US Stocks Close Out the Week Strongly – S&P up 0.4%
Market optimism carried through to the weekend in trading on Friday, with US equity markets posting another solid session as investors looked beyond ongoing geopolitical tensions. The Dow Jones rose 0.28% to finish at 52,637, while the S&P 500 gained 0.42% to close at 7,575. The Nasdaq also edged higher, adding 0.29% to end the week at 26,281, as risk appetite remained well supported.
US Treasury yields continued to push higher as inflation concerns lingered, with the benchmark 2-year yield rising 3.1 basis points to 4.208%, while the 10-year yield added 1.0 basis point to 4.561%. Despite the rise in yields, the US Dollar Index slipped 0.06% to close slightly lower at 100.97, weakening against most major currencies. The Yen was the notable exception after reports the Japanese government intends to encourage pension funds to increase investment into domestic assets, with USDJPY dropping over 0.4% on the day.
Oil prices eased modestly after recent strong gains as traders continued to monitor developments in the Middle East. Brent crude fell 0.38% to settle at $76.01 per barrel, while WTI crude declined 0.93% to finish at $71.41 per barrel. Gold also experienced another volatile session but finished little changed, easing just 0.02% to close at $4,120.07 an ounce.
Fresh Military Action in the Gulf to Drive Markets
Financial markets had remained relatively resilient over the last couple of weeks as investors had looked past ongoing hostilities in the Middle East to raise optimism across stocks and risk trades in general. However, this weekend’s updates, which have already seen gaps at the Asian open this morning, have traders expecting geopolitical developments to dominate sentiment throughout the day and possibly throughout the rest of the week if they continue to escalate. If this is the case, it may pop the bubble of investor enthusiasm as they reconsider higher energy prices and their inflationary impact, which could lead to some significant corrections in the coming days and weeks, maybe. The silver lining for investors is that both sides are committed to continuing talks about peace deals. However, until the path ahead is clear, more volatility is expected.
Geopolitics to Dominate Markets Today
Traders now turn their attention to the start of the new trading week, where the economic calendar is relatively light across all three trading sessions. There is little of note today in the Asian session – in fact, that is the case for most of the week – and we do hear from Fed members Michelle Bowman and Christopher Waller later in the day, but once again, geopolitics looks set to dominate sentiment as we progress through the day. Reports over the weekend that hostilities in the Middle East have intensified further, with Iran announcing the closure of the Strait of Hormuz once again, have already resulted in gapping on the Asian open today, and traders are expecting volatility to remain elevated across the sessions ahead.
