By Joe Mazzola
After a third straight weekly drop pushed the S&P 500 Index to nearly four-month lows, investors face several central bank meetings, an Nvidia (NVDA) conference, and earnings from chip giant Micron (MU) in coming days. So naturally, Wall Street focused this morning on crude oil prices and the war in the Middle East. Stocks edged up early as crude slipped, though investors might want to remember that recent rallies often faded.
Nvidia's (NVDA) GPU Tech Conference (GTC) features a speech by CEO Jensen Huang at 2 p.m. ET today that might momentarily distract from the drumbeat of war news. "Huang will likely deliver several AI-related headlines, which could have an impact on tech stocks," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research (SCFR), in his Weekly Trader's Outlook. Looking further out, the Federal Reserve is expected to keep rates unchanged Wednesday afternoon while delivering updated economic projections and a new "dot plot" of possible rate paths.
On Friday, Wall Street suffered sharp losses on rising crude, with tech stocks under pressure thanks to chip weakness. Energy and utilities were the only green sectors last week. Technically, the Nasdaq Composite suffered a blow Friday, closing beneath its 200-day moving average for the first time since May. The S&P 500 Index hovers just above its own of 6,600. Over the weekend, the U.S. asked for international help keeping the Strait of Hormuz open and attacked Iranian installations on Kharg Island. Hopes that a multi-country coalition could come together and help oil flow again appeared to help sentiment this morning.
Three things to watch
- Iran update: The war in Iran has evolved from a geopolitical event to a global energy supply shock. The disruption to energy and commodity supplies is likely to have an increasingly negative impact on economic and financial conditions the longer it goes on. "Even if military activity ends soon, the impacts to growth, inflation, and commodity prices could linger," wrote Michelle Gibley, director of international equity research and Chris Ferrarone, head of equity research and strategy, both of SCFR, in their latest look at potential economic impacts from the conflict. And the longer energy and commodity supplies remain disrupted, the greater the potential economic damage. Asia appears most vulnerable, with Europe also facing meaningful exposure. In this environment, financial conditions can remain tighter than normal and risk aversion can stay higher for longer, especially for international markets.
- Crosswinds as central bank meetings loom: Policymakers at major central banks this week must consider energy-driven inflation gains, while the Fed also might be concerned about a slower U.S. jobs market. Rising crude prices can lift near-term inflation, though policymakers tend to look beyond volatile energy and its impact on consumer and wholesale prices. That means it might take months of high energy prices seeping into other parts of the economy to make the Fed factor gas prices into its long-term inflation outlook. That scenario, however, would also likely raise recession odds and hurt jobs growth, putting the Fed in even more of a pickle. The Fed's announcement at 2 p.m. ET Wednesday includes policymakers' "dot plot" of the rate path ahead along with updates on economic expectations. Projections likely take center stage with no rate cut seen, but the question is whether Fed officials see any cuts at all this year after the last dot plot averaged one. Market expectations for a June rate cut are down to 23% from 56%, according to Bloomberg. The September Fed meeting, which had a theoretical 100% probability of a cut last week, has essentially been cut in half to 54%.
- Shortness of breadth: From a market breadth perspective, the last two weeks have been devastating. By late Friday, less than 32% of S&P 500 stocks traded at or above their 50-day moving averages, far below the 59% that had been the average over the last six months and down from 65% earlier this month. The pattern is also lower in the Nasdaq as stocks fell across the spectrum amid war and oil concerns and reached the lowest level since 2024 on Friday. Typically, broader participation suggests healthy investor sentiment and supportive technicals. Breadth had been healthy for months before the war, reflecting a move by investors into sectors beyond the mega caps.
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