US stocks continued to fall into Tuesday's market close after Pakistan said a US and Iran deal to address the Strait of Hormuz was close, while negotiations between the two countries remain at an impasse, pushing oil prices higher.
The S&P 500 ended the day down 0.3%, erasing earlier gains as Brent crude oil bounced above $89 per barrel. Utilities, energy and industrial stocks were all higher, while large-cap technology stocks continued to weigh down the index. The technology-heavy Nasdaq 100 also closed down 0.3%.
"Stocks are reflecting some disappointment about the lack of tangible progress in the Persian Gulf after exuberantly reacting to promises of an imminent deal last week," said Steve Sosnick, Chief Strategist at Interactive Brokers LLC. While stocks broadly ignored rising oil and bond yields yesterday, "a lack of other catalysts" pushed them lower today, he said.
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Tuesday's choppy trading comes ahead of closely watched consumer and producer price data that will help assess the probability of a Federal Reserve interest rate hike in September. The recent rise in oil prices has markets pricing back a nearly 50% chance of a rate hike, according to data compiled by Bloomberg.
| Analysts remain split on the near-term outlook for inflation and rates. Douglas Beath, global equity strategist at Wells Fargo Investment Institute, cautions that "elevated refined energy product prices and some increasing stickiness in core services - especially rents and medical care - make a less sanguine near-term inflation outlook." Citigroup analyst Andrew Hollenhorst expects CPI data to show signs of cooling in prices outside of energy, putting the focus back on domestic economic drivers. Economists expect the US consumer price index to have risen 0.1% in July following a 0.4% decline in the prior month, according to the median projection in a Bloomberg survey of ahead of Wednesday's Bureau of Labor Statistics release. Bloomberg Economics projects that core CPI may fall to its lowest year-over-year reading since March 2021. They expect that energy should subtract 11 basis points from the headline. "Investors are increasingly pricing a scenario in which inflation continues to ease, the Fed remains patient and earnings growth justifies elevated valuations," writes Daniela Hathorn, a senior market analyst at Capital.com. While another benign CPI report would reinforce that narrative and extend the rally a hotter-than-expected reading would push Treasury yields and the US dollar higher, she said, "forcing markets to reconsider whether the recent optimism around policy and valuations is justified." As the specter of rising interest rates and hostilities in the Middle East remain wildcards, skeptics are holding firm. Data from the American Association of Individual Investors show the number of bears in the stock market has outnumbered bulls in 20 of the past 25 weeks, a degree of persistence last seen in the aftermath of US President Donald Trump's rollout of global tariffs. National Federation of Independent Business Tuesday released its Small Business Optimism index which indicated that US small business optimism rose in July to its highest level in a year. The survey also found that the net share of US small businesses planning to add jobs jumped to the highest level since October 2022, while indicating easing inflation concerns. Meanwhile, US sales of existing homes fell to a three-month low in July as elevated prices and mortgage rates continued to weigh on the housing market. ALSO READ: Trade Setup For Aug 12: Nifty Support Slips To 24,350 Amid Hormuz Uncertainty | Key Levels To Watch Super Micro Computer Inc. shares jumped 9.8% in postmarket trading after the IT company reported a first quarter net sales forecast that beat analyst estimates. Coreweave Inc. shares gained 12% after the software company reported earnings that topped analyst estimates for second-quarter sales, extending gains in the regular session. Coreweave's shares have swung wildly since their IPO last year as the computing provider has become a bellwether for the artificial intelligence infrastructure buildout. The company projected that the benefits of capital expenditures should start showing up in the second half of this year. According to Bespoke Investment Group, technology stocks are raising guidance at a higher pace than any other sector this earnings season. Sectors to Watch
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