- Stocks collapsed last week as geopolitical tensions increased.
- Market participants are looking forward to Nvidia’s earnings report.
- Reports this week revealed that the US plans to sanction Iran.
Equities were subdued on Tuesday as investors cautiously awaited Nvidia’s earnings report. At the same time, traders are looking forward to US inflation figures, which will shape the outlook for Fed rate hikes.
Stocks collapsed last week as geopolitical tensions increased, dashing hopes for a peace deal to end the Iran war. The US and Iran continued to dispute control of the Strait of Hormuz. Moreover, none of them was ready to accept the other’s terms for a peace deal. Therefore, by the end of the week, Iran maintained that the Strait of Hormuz would remain shut. Meanwhile, Trump said there would be no more talks with Iran, and the Strait was open.
The conflicting messages caused uncertainty about the future. It dimmed hopes for a near-term deal to end the conflict. As a result, oil prices gained, and inflation worries intensified. At the same time, Fed rate hike expectations edged higher.
Still, with the US economy showing signs of weakness, policymakers might opt to keep rates unchanged. The FOMC meeting minutes released last week showed that they were willing to hike interest rates and tame inflation. Moreover, policymakers will focus more on inflation when they are forced to balance it with growth. However, all of this uncertainty remains to be seen.
Equities dropped because the Middle East war is hurting the US economy, which could reflect in future earnings reports. At the same time, uncertainty surrounding the futures had most investors rushing for safer assets.
On Monday, the downtrend paused, with attention now turning to the upcoming Nvidia earnings. This report is important because it will show the state of the AI sector. This sector has been the driving force behind this year’s rally in equities. If it is performing poorly, it could mean a reversal in the trend.
Traders are also awaiting the US core PCE price index report, which will show the state of inflation and shape the outlook for Fed policy.
S&P 500 futures (Source: TradingView)
Furthermore, reports this week revealed that the US plans to sanction Iran. The move aims to punish Iran’s economy and that of its allies. However, it might worsen the situation. This escalation is a sign that the two countries are not ready for peace.
