Blockade Blues: Stocks Down, Oil Up as Talks Fail

No Strait Answers: Fresh Iran Tension Snuffs Rally

By Joe Mazzola

(Monday market open) Friday's exuberance quickly became a case of the Monday blues after Middle East anxiety re-ignited over the weekend. The Strait of Hormuz—which Iran said Friday had re-opened—remains closed this morning as the ceasefire clock winds down and Iran gives mixed signals about joining peace talks, though the latest indications point to its participation. Investors grew cautious, sending stocks down about 0.4% in early trading while crude soared 5% from Friday's one-month depths.

Tensions escalated Sunday after President Trump said the U.S. had fired on and seized an Iranian ship. He also renewed prior threats to hit Iranian power plants and bridges. Iran said it will keep the strait closed so long as the U.S. blockade continues, media reports said, while China today urged a re-opening. The ceasefire ends Wednesday. All this could sap enthusiasm for growth stocks in the tech and discretionary sectors, perhaps giving defensive areas like staples and utilities a boost. Technically, the market looks overbought. The sharp recent rally means technical support is well below the S&P 500 Index's current levels, perhaps near the 50-day moving average just under 6,770. That's a steep drop.

Looking back to Friday, major indexes surged more than 1% to new record highs on news Iran would open the strait, with sectors like discretionary, industrials, and technology leading the charge. The Nasdaq Composite posted its 13th straight higher session, the longest stretch since January 1992, and the S&P 500 Index rose 4.5% for the week. This suggests the market wants to move past its focus on the war. "Investors wasted little time putting money back into risk assets on positive Iran developments," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research, or SCFR, on Friday.

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