- Trump said the US military would block the Strait of Hormuz.
- Market participants are looking forward to a solid earnings season.
- Traders will watch the US wholesale inflation report.
Equities edged lower on Monday as market participants worried about failing US-Iran talks. However, there was less panic in the markets after Trump urged the blockage of the Strait of Hormuz. At the same time, analysts are forecasting a solid US earnings season that will likely boost equities.
Developments in the US-Iran war continued shaping markets, especially after Trump’s shocking pronouncement. Reports on Sunday revealed that talks between the two countries failed. Moreover, Trump said the US military would block the Strait of Hormuz.
Last week, the US and Iran struck a deal, pausing the war for two weeks. The move improved risk sentiment, leading to a rebound in equities. The ceasefire deal came after Iran accepted the US’s condition to reopen the Strait of Hormuz. Therefore, it was quite surprising when Trump suddenly turned and said the US would block the Strait.
The blockage of the Strait of Hormuz has caused a lot of disruptions in oil supply. As a result, oil prices have skyrocketed. At the same time, inflation and recession worries have weighed on equities. If the Strait remains blocked, oil prices will keep climbing, worsening the situation.
Nevertheless, the market reaction on Monday was subdued. Experts believe that markets are getting used to geopolitical shocks. Moreover, there is a chance that Trump is only using this as a negotiation tactic.
“There’s a belief that a lot of this is negotiation tactics,” said Billy Leung, investment strategist at Global X ETFs, referring to Trump’s announcement. “Markets have reached peak uncertainty. The reaction function is no longer as extreme as before.”
Market participants are still hoping for a longer-lasting ceasefire deal that would bring down energy prices.
S&P 500 Earnings (Source: FactSet)
Elsewhere, market participants are looking forward to a solid earnings season. Earnings expectations show a likely 12.6% profit increase for S&P 500 companies. Moreover, analysts believe the technology sector will perform well. Strong earnings would give investors something positive to hang onto. On the other hand, poor earnings would send equities even lower.
Meanwhile, traders are also watching US data for clues on future Fed policy. Consumer inflation figures on Friday missed estimates, easing expectations for rate hikes. This week, traders will watch the US wholesale inflation report.
