US equities closed mixed amid volatile trading on Wednesday as oil prices surged and a standoff between the US and Iran over the Strait of Hormuz escalated. Investors also assessed a split policy decision by the Federal Reserve while awaiting earnings from four megacap companies that were released after the bell.
The S&P 500 Index finished almost unchanged in New York, as declines in industrials and healthcare names outweighed gains in energy stocks. Nvidia Corp. and Microsoft Corp. were the biggest decliners on a point basis. The tech-heavy Nasdaq 100 Index gained 0.6%. Brent crude jumped 8% to around $120 per barrel.
The Fed held interest rates steady on Wednesday but revealed a deepening division over the policy outlook, sending Treasury yields higher as traders boosted bets on a rate hike as soon as next year. Chair Jerome Powell told a press conference that the number of Fed officials who favor a more neutral language in the statement has "increased," indicating a hawkish shift.
Tech earnings are the main focus of the market during the busiest week for first quarter corporate results. Four out of the so-called Magnificent 7 names - Amazon.com Inc., Alphabet Inc., Meta Platforms Inc. and Microsoft - reported their results after the bell, with investors scrutinizing whether massive spending is generating enough returns. Meta shares slid after the company boosted outlook for capital spending.
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Traders will also pay attention to revenue contributions from businesses outside OpenAI, after a report on the AI startup sparked a selloff in chip and other technology names a day earlier.
"We want to see what that non-OpenAI growth looks like," said Angelo Zino, senior equity analyst at CFRA Research. "I think it's going to be really strong and I think these companies are going to be able to diversify away from OpenAI over the next a couple of quarters."
| Along with Nvidia, Apple Inc. and Tesla Inc., the cohort of the seven behemoths charged the S&P 500 Index higher to all-time highs in the past few weeks. The equity benchmark is on course for its best month since November 2020 after gaining more than 9% in April. But a measure of relative strength has reached overbought levels while investor positioning is modestly overweight, leaving equities vulnerable to a swift reversal. Investors should be prepared for a pullback and be ready to pounce when fear peaks as much of the earnings optimism has already been priced in, according to Morgan Stanley Investment Management's Andrew Slimmon. "The AI trade remains fragile because everyone wants to hate it the moment a negative headline appears," said Mark Malek, chief investment officer at Siebert Financial. "That creates reflexive selloffs that may not match the underlying economics." Meanwhile, oil prices rose as the US signaled it would stick with a naval blockade of Iranian ports, in a bid to choke off Tehran's oil exports and force it back to the negotiating table. Axios reported that President Donald Trump had rejected Iran's proposal to reopen the Straight of Hormuz and wouldn't rule out military action. Sharp gains in oil prices are equivalent of "the market saying 'no deal anytime soon,'" between the US and Iran, according to Adrian Helfert, multi-asset strategies chief investment officer at Westwood. With the critical oil passage still closed, investors are looking to earnings from the big tech firms for signals that the economy remains strong. "If the strait was open I would say it's probably less of an issue but because it's closed you need to keep those juggernauts moving higher," said Sarah Hunt, chief market strategist at Alpine Woods Capital Investors. "Everyone is looking to make sure this growth has been as strong as it has been." Some of the March economic data released earlier in the day underscored the strength in AI spending. Commerce Department figures showed US orders for business equipment increased in March by the most since mid-2020. New residential construction rose in March to the highest level in more than a year. A raft of economic data will be released later this week including March core PCE Price Index and US first-quarter growth domestic product on Thursday. ALSO READ: Oil Rates Spike: Brent Nears $120 As Trump Rejects Iran Offer On Solving Hormuz Gridlock In single-stock moves, Robinhood Markets Inc. sank after warning about expenses tied to Trump accounts while Starbucks Corp. climbed after better-than-expected earnings. Seagate Technology Holdings Plc jumped after strong results and forecast thanks to AI-related demand. Bill Ackman's Pershing Square USA Ltd. plunged 18% in its debut after the combined initial public offering for the closed-end fund and his alternative asset manager raised $5 billion. |
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