Wall Street was rattled by a renewed selloff in some of the world’s largest technology companies, with stocks also falling as a flare-up in geopolitical tensions lifted oil prices.
Those worries drove the S&P 500 to a five-week low, with the benchmark dropping 1.6%. A closely watched gauge of chipmakers fell 3.6%. US crude settled around $90 as President Donald Trump vowed to strike Iran again and scolded the country for delaying talks on an interim peace deal, following overnight attacks that put further strain on a fragile truce.
Warnings of a bubble have been loudest in parts of the market riding the artificial-intelligence wave, where many of the megacaps and semiconductor firms have delivered strong returns.
“It’s often two steps forward, one step back — and recently we’ve had three steps forward,” said Keith Lerner at Truist Advisory Services. “A step back in some of the hotter areas of the market, such as tech, that allows expectations and prices to reset is to be expected and healthy for the long-term sustainability of the bull market.”
Investors are also preparing for a wave of new equity supply unlike anything seen in recent history. A flood of shares from companies seeking capital to fund AI ambitions is raising questions about whether demand will be sufficient to absorb the issuance and what the implications will be for valuations.
Meantime, increased tensions in the Middle East risk derailing intermittent indirect talks between Iran and the US. That means the path to a deal allowing for the revival of the Strait of Hormuz is clouded, stoking concern over inflationary pressures that could make the Federal Reserve raise rates before the year is over.
“Investors had been banking on a quick peace deal in the Middle East,” said Bret Kenwell at eToro. “The trouble is, the longer it takes to find a resolution, the more likely oil prices remain elevated. And the longer energy prices stay elevated, the stickier inflation can get.”
Those concerns overshadowed relatively tame data on consumer prices that had earlier brought a degree of relief to traders. While US inflation accelerated in May to the fastest pace in more than three years, the core measure rose by less than forecast.
It’s possible that things wrap up in the Middle East and shipping gets back to normal over the course of the year, in which case we can see inflation come down over time and the Fed could hold off raising rates, according to Chris Zaccarelli at Northlight Asset Management.
“But if things stay as they are currently, then all bets are off,” he said.
What Bloomberg Strategists say…
“Traders are taking the escalation in US-Iran tensions with a grain of salt. President Trump’s tendency to escalate to de-escalate is all too familiar for investors by now.”
—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.
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Written by: Rita Nazareth @Bloomberg
The post “Tech Stocks Sink as Oil Jumps on US-Iran Jitters: Markets Wrap” first appeared on Bloomberg
