US stocks declined on Tuesday as the price of oil rose, with fighting between the US-Israel alliance and Iran raging unabated, even as President Donald Trump took an optimistic tone on the state of negotiations with Iran. Alternative asset managers were also hit as Ares Management Corp. and Apollo Global Management Inc. became the latest firms to curb withdrawals from some funds, rekindling investor concerns about private credit.
The S&P 500 Index closed down 0.4%, with four of 11 sectors trading lower. Communications and real estate stocks were the biggest decliners, while energy and materials led gaining sectors. The Nasdaq 100 Index shed 0.8%. There was a relative rotation into small caps, with the Russell 2000 Index gaining 0.5% and micro caps advancing 0.3%. West Texas Intermediate crude rose 4.2%.
“There's a bias toward optimism as investors want to believe the best news,” said Kristina Hooper, Chief Market Strategist at Man Group Plc. “The danger of a bias toward such optimism is that there are mispricings and a lack of fully accounting for the downside.”
Retail trading had been softening since the start of the Iran conflict, according to Vanda Research, with Monday “marking a key inflection point as retail net sold $20.6 million of single stocks, the first day of net selling since November 2023,” the firm wrote. However, it said there were signs that those investors returned to dip-buying on Tuesday.
Trump on Tuesday afternoon signaled Iran had offered a “present” as a show of good faith in negotiations. At the same time, the US is deploying more troops to the Middle East. Marines are on their way to the region and there are reports the Pentagon is planning to send a team from the Army's elite 82nd Airborne Division to support operations. Meantime, an Iranian missile with a 220-pound warhead hit Tel Aviv on Tuesday, a rare occurrence that signals Tehran is using a new type of munition against Israel, the Wall Street Journal reported.
Iran appointed a hardliner as its top national-security leader, replacing Ali Larijani, who was killed last week. Israeli officials said the country will persist with strikes against Iran, while Saudi Arabia was said to have told the US it's ready to strike Iran if its own power and water plants were targeted by the Islamic Republic.
“We are not dealing with single decision-maker dynamics,” Helima Croft, head of global commodity strategy at RBC Capital Markets, wrote in a note. “Unlike the case with tariffs or Greenland, multiple stakeholders have a say in how this war ends, and ships, not soundbites, will likely be what ultimately matters for physical markets.”
“There's a lot of fear baked into the US equity markets right now,” said Jeffrey Favuzza, an equities trader at Jefferies Financial Group Inc., citing the CNN Fear and Greed Index at 15 — “extreme fear” — and the VIX Index in the mid-20s. Even so, he noted that S&P 500 was just about 6% off all-time highs and pointed to strong earnings-per-share estimate revisions, which have been pushing price-to-earnings multiples on the index lower.
“The multiple draw-down would tell you that we're getting close to a bottom,” Favuzza said. “The actual 6% draw-down would tell you this is just a run-of-the-mill draw-down versus a real correction.”
Adding to investor concerns, shares of Apollo fell after the firm became one of the latest alternative asset managers to curb redemptions from one of its largest non-traded private credit funds. Apollo Debt Solutions, a $25 billion business development company, capped withdrawals at 5% of outstanding shares after clients sought to redeem 11.2%. Ares also limited redemptions at its $10.7 billion private credit fund.
“We believe Apollo's decision to ‘hold the line' at 5% for the quarter and prorate redemptions is doing right by their investors and prevents incremental leverage, cash drawdowns, or forced asset sales,” Evercore ISI analyst Glenn Schorr wrote in a note. “While no investor or LP likes to see write-downs, investors have likely priced that, to some degree, into the parent company stocks.”
In deals news, Estée Lauder Cos. said it's in talks to buy Puig Brands SA, creating a cosmetics giant with about $20 billion in annual sales. Shares fell 9.9%, closing at their lowest level since mid-June.
US stocks had rallied on Monday after President Donald Trump ordered the Pentagon to hold off on military strikes against Iranian energy infrastructure, spurring a retreat in oil prices.
“While Monday's bounce produced gains across the board, its afternoon fade is evidence that this is just a relief rally in a downtrend with deteriorating breadth,” Piper Sandler Chief Market Technician Craig Johnson wrote. “Until proven otherwise, investors should use sharp headline-driven rallies with skepticism and wait for evidence that this is more than just an oversold relief rally.”
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