- The stock market collapsed last week amid a sell-off in major tech companies.
- The US and Iran agreed to stop the fighting and continue talks.
- This week, traders will watch the US nonfarm payrolls.
Equities rebounded at the start of the week as tensions between the US and Iran eased. At the same time, tech stocks, which had plunged in the previous week, recovered, boosting the Nasdaq futures. Market participants are now looking forward to the nonfarm payrolls report due on Thursday.
The stock market collapsed last week as major tech companies fell. The growth stocks have suffered since the June FOMC policy meeting. A surprisingly hawkish tone led to a sharp repricing of expectations for Fed rate hikes.
Investors were expecting a less hawkish tone since the US and Iran had announced a deal to end their war and reopen the Strait of Hormuz. The news improved the outlook for oil supply, easing inflation worries. As a result, oil prices declined from their peaks. However, there was still some uncertainty over whether the new deal would stick. Nevertheless, it was a major step towards peace.
While the war was raging, the Fed considered raising rates in December. However, after the meeting, it became clear that policymakers were ready for more than one hike this year. Consequently, traders pushed forward the timing for such a move to September. The likelihood of a 25-basis-point hike increased from 29% to 69%. At the same time, they were fully pricing a rate hike in October.
Higher borrowing costs hurt growth companies the most. Therefore, as bets increased, tech companies began to drop. The trend held throughout the week.
Nasdaq 100 Index performance (Source: Bloomberg)
Over the weekend, tensions in the Middle East rose after the US and Iran started exchanging fire again. This caused uncertainty about their ceasefire deal. However, come Monday, the two nations had made up and agreed to stop the fighting and continue talks. The next round of negotiations is set to take place in Qatar. These developments allowed equities to recover.
Since the deal, risk appetite has improved for several reasons. The Strait of Hormuz has reopened to traffic. Meanwhile, the US blockade of Iranian ports has ended. At the same time, the US has lifted sanctions on Iranian oil, and Iran has agreed to have its nuclear activities monitored.
This week, traders will watch the US nonfarm payrolls for additional clues on the Fed’s future moves. An upbeat report would boost rate hike expectations and send stocks lower.
