Bessent Crushes Oil: Futures at Record Highs
Treasury Secretary Scott Bessent's remarks on a potential deal with Iran that could reopen the strait triggered a sharp drop in oil prices and pushed U.S. stock futures to new all-time highs.
Treasury Secretary Scott Bessent's remarks on a potential deal with Iran that could reopen the strait triggered a sharp drop in oil prices and pushed U.S. stock futures to new all-time highs.
U.S. stock futures hit new all-time highs on Tuesday, fueled by expectations of an imminent diplomatic resolution to the crisis in the Strait of Hormuz. The key catalyst was Treasury Secretary Scott Bessent's comments to CNBC, where he suggested that a deal with Iran to open the strategic waterway could be reached "as soon as tomorrow."
This news triggered a sharp decline in oil prices. WTI crude fell to $76 a barrel, while Brent dropped 3%. As of 8:00 a.m. Eastern Time, S&P 500 futures were up 0.4% to a record 7,655 points, and Nasdaq futures jumped 1.1%.
Palantir Technologies led premarket gainers, rising 16% after raising its full-year revenue and profit guidance, describing commercial demand for its data analytics tools as "out of this world." Among chipmakers, Onsemi climbed 7% after quarterly revenue and earnings beat analyst estimates, with analysts noting that demand from data centers for artificial intelligence is boosting results.
Among the tech giants known as the Magnificent Seven, the picture was mixed. Nvidia shares gained 1.3%, and Tesla rose 0.6%. On the other hand, Amazon fell 2% after founder Jeff Bezos filed to sell shares worth $4.07 billion. Meta lost 1.7%, Alphabet 1.5%, and Microsoft 2%. Apple was slightly down 0.2%.
The quarterly earnings season continues to provide strong support to markets. Of the 322 S&P 500 companies that have reported so far, 86% beat analyst estimates for earnings per share, the highest rate in five years. Annual EPS growth stands at a robust 29%. On the revenue side, 68% of companies positively surprised the market, while 16% missed.
Among the biggest winners, Caterpillar stood out with a 9% gain after quarterly revenue and earnings beat Wall Street expectations, driven by strong growth in the energy production segment amid data center spending. Ameresco jumped 30% after raising its adjusted EPS guidance, and Voyager Technologies rose 15% on increased revenue prospects. McDonald's gained 2% after releasing quarterly results.
On the flip side, Snap rose 5% after reporting higher-than-expected quarterly sales and giving an optimistic forecast, signaling optimism ahead of the commercial debut of its first augmented reality glasses in September. Spotify fell 4% as third-quarter guidance for monthly active users and operating profit missed expectations. Nike lost 3% after JPMorgan downgraded it to "underweight," and BioNTech SE fell 3% due to reduced revenue outlook amid weaker demand for its COVID-19 vaccine.
Special attention is focused on SpaceX, which will release its first quarterly results as a publicly traded company later on Tuesday. Bloomberg warns that the report could raise more questions than answers, given that the company is not profitable and operates on a highly speculative model. An additional challenge is a technical factor: as much as 95% of SpaceX shares available for borrowing are on loan, and short interest stands at 34% of the free float.
Overhanging the market is also the announcement of one of the largest share unlocks in capital markets history, with as much as $116 billion worth of shares becoming available for sale next month. Chris Weston, head of research at Pepperstone Group Ltd., said: "The bigger problem for SpaceX remains the looming overhang of shares. There is a sense that many investors still want to own the stock but are waiting for the selling pressure associated with the lock-up expiry to begin to wane."
Positive sentiment spilled over to European markets. The Stoxx 600 index rose 0.4%, led by the mining and technology sectors. BP shares rose as much as 1.7% after the British oil major posted second-quarter adjusted operating profit above expectations. Johnson Matthey jumped 5.2% after Jefferies reinstated a "buy" rating, and Travis Perkins surged 19%, the most since April 2020, following encouraging half-year results.
On the other hand, German online retailer Zalando suffered a decline of as much as 18%, the most since 2018, after narrowing its annual guidance alongside quarterly results. Lufthansa plunged 11%, the most since March, due to an operating profit miss driven by higher fuel costs. Fresenius Medical Care fell 9.6%, and Smith & Nephew dropped 7.9% after weaker revenue and reduced growth outlook.
Asia-Pacific markets were more cautious. The MSCI Asia Pacific index slipped 0.2%, pressured by declines in Taiwan's TSMC and Japanese banks such as Mitsubishi UFJ Financial and Sumitomo Mitsui Financial. However, South Korean chipmakers managed to recover, with SK Hynix, Samsung Electronics, and Kioxia recouping some losses after a Counterpoint Research report suggested that rising DRAM memory prices are boosting prospects for memory chip makers.
In currency markets, the dollar strengthened, and the yen continued to weaken after yesterday's intervention. The USD/JPY exchange rate approached 158.00, while analysts believe the intervention will not have a lasting effect. According to analysis in the source, the market is likely signaling the need for the Bank of Japan to raise interest rates. Pressure on Japanese government bonds intensified following an exceptionally poor auction of 10-year JGBs overnight.
Yields on U.S. Treasuries fell 2-3 basis points, tracking the decline in oil prices. Precious metals prices rose, with spot gold trading within a range of $4,043 to $4,073 per ounce. Bitcoin lost 0.4%.
Jeff Buchbinder, chief equity strategist at LPL Financial, summed up the sentiment: "The combination of resilient economic growth, strong corporate earnings, and AI-driven investment continues to provide a favorable backdrop for stocks. While investors are right to question elevated capital spending and monitor developments in the Middle East, we believe these risks will be offset by a strong tailwind from earnings."
In the hedge fund sector, Coatue Management's fund plunged 8.3% last month, making it the latest tech-focused money manager hit by the turmoil following the selloff in AI-related stocks.
