Chip Stocks Lead the S&P 500 and Nasdaq Higher After Iran Ceasefire
The S&P 500 fell slightly on Friday, but the index managed to post a solid weekly gain as traders kept an eye on the fragile two-week ceasefire between the U.S. and Iran.
The broad market index dropped 0.11% to end at 6,816.89, while the Nasdaq Composite moved higher by 0.35% and closed at 22,902.89, bolstered by gains in key semiconductor stocks such as Nvidia and Broadcom. The Dow Jones Industrial Average declined 269.23 points, or 0.56%, ending at 47,916.57.
Still, the S&P 500 added about 3.6% this week, and the Nasdaq rose about 4.7% in the period. The Dow, meanwhile, gained 3% on the week. The indexes posted their best weekly performances since November.
President Donald Trump on Friday accused Iran of “short term extortion of the World by using International Waterways,” saying in a Truth Social post that its leaders “don’t seem to realize they have no cards” and that “the only reason they are alive today is to negotiate!”
This comes a day after the president warned that Iran should not charge fees to oil tankers that are traveling through the Strait of Hormuz, writing in a post on Truth Social: “They better not be and, if they are, they better stop now!”
Oil prices seesawed as concerns around the strait’s reopening hovered over the market. West Texas Intermediate crude futures ultimately fell 1.33% to settle at $96.57 a barrel, and international benchmark Brent crude futures declined 0.75% to settle at $95.20.
Inflation was top of mind for investors this week as they assessed a number of key reports amid concerns that rising energy prices spurred by the conflict in the Middle East would ripple through the U.S. economy.
March’s consumer price index report showed that inflation was in line with expectations, standing at 0.9% for the month and 3.3% on an annual basis. That incorporated a 10.9% jump in energy costs due to the conflict.
When excluding energy prices, however, the report revealed inflation was tame last month. Core CPI increased just 0.2% for the month and 2.6% compared with a year ago, coming in below expectations. Inflation had been sticky at 3% heading into the Iran war, which has been going on for nearly six weeks.
Nevertheless, the war has still led to a jump in inflation fears. According to a University of Michigan survey released Friday, consumers are anticipating that inflation will jump to 4.8% over the next year. That’s up a full percentage point from March’s reading.
“The Fed will do everything in its power to look past whatever data points it gets for March and April,” said Tim Holland, chief investment officer at Orion. That’s assuming “there is an off-ramp between the U.S., Israel and Iran,” he added.
While Holland does believe the Iran war will “wind down” from here — and that oil prices will reset, by extension — he cautioned that investors should get more concerned about its inflationary impacts if the price of WTI crude is still trading around $100 a barrel by early to mid-June.
“You’ve got this potential toxic cocktail of already depressed consumer sentiment and a real re-rating of inflation expectations higher,” he said. “That’s just that’s going to be a tough spot for the economy and put the Fed in a bit of a pickle.”
Rian Howlett and Karen Friar of Yahoo Finance also report stocks post second straight winning week amid fragile US-Iran ceasefire:
Stocks posted their second straight weekly gain amid a fragile ceasefire between the United States and Iran.
The S&P (^GSPC) and the Dow Jones Industrial Average (^DJI) were up more than 3% over the last five days while the Nasdaq Composite (^IXIC) surged more than 4%.
All three indexes traded mostly flat on Friday. The indecisive trading in stocks comes as investors await the results of weekend talks on the tenuous ceasefire in the US-Iran war and follows March inflation data that showed a surge in consumer prices after the start of the war.
The Dow Jones Industrial Average (^DJI) moved back into green figures for the year on Thursday, while the Nasdaq Composite (^IXIC) and the S&P 500 (^GSPC) remain off just less than 1% for the year.
The release of the Consumer Price Index data on Friday showed the annual headline rate soared in March to 3.3%. Prices rose 0.9% from February, the largest monthly gain since 2022. The rapid acceleration from February's inflation level of 2.6% came as the US-Iran war sent gas prices skyrocketing.
Investors are now focused on the Iran-US talks slated to occur this weekend, looking for signs the fragile two-week truce might lead to a longer-lasting plan for peace.
Ahead of the meeting, President Trump ramped up pressure on Iran to lift its blockade of the Strait of Hormuz, with little sign of success. Traffic through the world's most critical chokepoint for energy supply is still thin.
Software selling is relentless...
( Myles Udland reports) My colleague Jared Blikre made the point earlier today that software stocks can't catch a break.
With a few hours to go in the trading week, it is worth taking a look at some of the carnage we're seeing underneath the surface of a market that looks reasonably calm — if lacking some enthusiasm — heading into the weekend.
Biggest losers on the S&P 500 on Friday include —
ServiceNow (NOW), down 8%.
Palo Alto Networks (PANW), down 7%.
CrowdStrike (CRWD), down 5%.
Intuit (INTU), down 4.8%.
Broaden this lens to the Russell 1000 and you'll find —
Cloudflare (NET), down 11%.
Snowflake (SNOW), down 9%.
RingCentral (RNG), down 8%.
HubSpot (HUBS), down 7%.
Datadog (DDOG), down 4.7%.
In the big picture sense, geopolitical developments resolved to the level where investors could return to regularly scheduled programming. Things like earnings season, forthcoming big tech IPOs, and so on.
Unfortunately for software names, the pre-Iran regularly scheduled programming also included "sell anything related to software every day."
Financials lag market, insurance stocks sink on report warning of private credit risks
The financial sector was the biggest laggard in Friday's trading session with insurance stocks dragging down the XLF (XLF) after a report from A.M. Best published Friday morning warned of growing risks on the balance sheets of insurance giants tagged to private credit.
The biggest losers in the financial sector Friday were shares of Ares (ARES), Arthur J. Gallagher (AJG), Aon (AON), and Willis Towers Watson (WTW).
In the report, which the Wall Street Journal first broke early Friday morning, A.M. Best notes risks within annuity products that fared well during the financial crisis, but now face a new "undercurrent of financial instability in some asset classes against a backdrop of greater economic and geopolitical instability."
The report warned that annuity reserves, or the capital that backstops the payment guarantees made by an annuity, have moved to lower-quality issuers and often to overseas affiliates that offer less transparency to investors.
"PE/AM-backed insurers have entered the annuity market in a frenzy over the last five years as annuity premiums have surged," the report adds. "These asset managers have used the higher yields earned from their private credit portfolio to offer higher crediting rates on product offerings and winning some market shares."
To oversimplify a bit, more companies have moved into the annuities space because it's an attractive source of capital: win upfront payments, earn a return on that capital, pay it out slower than it comes in the door, keep the spread.
And as the report notes, a lot of that capital has moved into private credit, which itself operates on a similar dynamic: gather assets, deploy them to earn a return, pay out some of that return your investors, keep the spread.
But with rising questions about the private credit asset class — both in terms of the quality of their investments and the durability of the investor base — more analysts are calling out more risks in new areas of the financial system.
No doubt about it, it was another terrible week for software stocks, many of which were among the worst-performing large-cap stocks this week (see full list here):
SaaS-Pocalypse continues to be a big theme and it will be interesting to see if this earnings season, software companies address it head-on.
While software stocks struggled this week, chip stocks led by NVIDIA and Broadcom had a terrific week, as semis were up 11.4%:
Long semis/ short software continues to be the big trade in tech this year.
More broadly, most of the sectors were up this week as the relief rally took hold, but energy got hit as oil sold off:
Looking ahead, will the ceasefire hold? I think so, Trump has too much to lose to bungle this up, he needs to negotiate hard with Iran and make sure that a truce lasts.
Alright, let me end it there, I do this Friday comments mostly for my own trading but hope others enjoy them too.
Below, the CNBC Investment Committee debate whether the worst of the sell-off is over and how they are trading it today.
Also, professor John Mearsheimer argues that Iran's victory over the US will transform the international system. The US alliance system is in decline, NATO is done, and Project Ukraine will also be impacted.
John J. Mearsheimer is the R. Wendell Harrison Distinguished Service Professor of Political Science at the University of Chicago, where he has taught since 1982.
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