Stocks Rally on AI Surge – Nasdaq Hits New High, up 2.26%
US equity markets rallied strongly on Monday, with technology stocks leading the advance as investors returned to AI-related names and falling oil prices provided further support to risk sentiment. The Dow Jones gained 0.71% to close at 52,048, while the S&P 500 advanced 1.49% to 7,764. The Nasdaq significantly outperformed, rising 2.26% to a fresh record close of 27,122.
US Treasury yields were mixed across the curve. The policy-sensitive 2-year yield edged 0.4 basis points higher to 4.747%, while the benchmark 10-year yield fell 4.5 basis points to 4.951%, moving back below the key 5% level. Despite the decline in longer-dated yields, the US dollar strengthened against the major currencies, with the Dollar Index gaining 0.19% to close at 100.40.
Oil prices came under significant pressure, falling to 12-day lows as concerns around Saudi supply eased and markets looked towards this week’s UN meetings for signs of potential diplomatic progress in the Middle East. Brent crude dropped 3.64% to $100.09 per barrel, while WTI fell 4.51% to $95.78. The decline in energy prices helped improve broader risk sentiment as concerns over the inflationary impact of elevated oil prices eased.
Gold also moved lower as the stronger US dollar weighed on the precious metal. Gold declined 0.78% to close at $4,342.96, continuing the recent pattern of currency moves having a greater influence on the metal than geopolitical safe-haven demand.
Oil Remains Major Driver for Global Markets
Oil prices have fallen sharply over recent sessions as traders have started to unwind some of the substantial geopolitical risk premium built into crude markets, with hopes rising that this week’s United Nations General Assembly in New York could provide a platform for progress towards ending the conflict in the Middle East.
The key focus this week will be potential talks between the US and Iran. President Trump has indicated that he would be open to meeting Iranian President Masoud Pezeshkian on the sidelines of the UN General Assembly, while Tehran has reportedly communicated that it is open to a return to negotiations. Markets are hoping that meetings in New York could at least establish a pathway towards de-escalation, even if a comprehensive peace agreement remains some distance away.
Supply concerns have also eased somewhat. Saudi Arabia has increased crude exports through the Strait of Hormuz following disruption to its East-West pipeline, with recent data indicating flows through Hormuz averaging around 2.9 million barrels per day, compared with approximately 700,000 barrels per day in August.
The geopolitical situation remains highly fragile, particularly following further Houthi attacks on Saudi targets. However, the price action highlights just how much of oil’s recent rally has been driven by geopolitical risk. Any concrete signs of a ceasefire or meaningful US-Iran negotiations at the UN could see that premium unwind further and place additional downward pressure on crude prices. Conversely, disappointment from this week’s diplomatic efforts could quickly see the recent drop corrected and traders again looking at fresh highs for the year.
Another Quiet Calendar Day Ahead
The macroeconomic calendar remains relatively quiet today, although comments from RBA Governor Michele Bullock during the Asian session and ECB President Christine Lagarde in the London time zone could generate some volatility in the Australian dollar and euro, respectively. Japanese markets remain closed for a public holiday, which could see lower Yen liquidity and choppy trading conditions.
With little in the way of major economic data scheduled, geopolitical developments are again likely to remain an important driver of broader market sentiment, particularly any updates surrounding potential Middle East negotiations at this week’s UN meetings.
