(Aug 5): Hopes for an agreement to revive the Strait of Hormuz lifted stocks to all-time highs, bonds climbed and oil sank, with Wall Street’s enthusiasm also fuelled by a batch of solid corporate earnings.

Both the S&P 500 and the Dow Jones Industrial Average rose to records. The Nasdaq 100 jumped 3.3%. Chipmakers saw their best four-day rally since 2020. In late hours, SpaceX reported strong revenue. Advanced Micro Devices Inc’s outlook failed to inspire. Brent crude fell below US$80. 

The prospect of an interim deal focused on the Strait of Hormuz appeared to be gaining traction, with Qatar saying a proposal had been drafted and both American and Iranian officials sounding hopeful about an agreement.

US President Donald Trump discussed efforts to deescalate US-Iran tensions with Qatar’s Emir Sheikh Tamim Bin Hamad Al-Thani, according to the Gulf state’s government. Tehran is considering allowing European nations to remove mines from Hormuz, said diplomats familiar with the matter.

“Markets are reacting to the possibility that a reopening of the Strait of Hormuz could help normalise global oil supplies and reduce near-term energy price pressures,” noted Tony Miano at Wells Fargo Investment Institute. “Lower oil prices can ease inflation concerns.”

That said, inflation is unlikely to normalise overnight, Miano warned. Energy-related pressures may ease, but broader prices could remain sticky in the near term, limiting how far Treasury yields move lower, he concluded.

While Federal Reserve policymakers last week left rates unchanged, more officials have expressed support for a hike as the Iran war and an AI investment boom fuel inflationary worries.

On the economic front, US job openings eased in June but hiring picked up slightly, indicating relatively steady demand for workers heading into the summer. 

That stability gives the Fed room to stay focused on inflation, although Friday’s jobs report could quickly change the conversation, according to Bret Kenwell at eToro.

“A red-hot print could strengthen the case for a September rate hike, particularly with inflation still elevated,” he said. “However, a disappointing report combined with last week’s weaker-than-expected gross domestic product growth could give the Fed more cover to remain on hold.”

Uploaded by Isabelle Francis