The S&P 500 Index ($SPX) (SPY) closed up +0.61% on Tuesday, while the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.76%.
June E-mini S&P futures (ESM26) rose +0.61% and June E-mini Nasdaq futures (NQM26) rose +1.72% on the session.
The S&P 500 and Nasdaq 100 both posted new all-time highs as falling crude oil prices and bond yields fueled a rally in technology stocks.
Stocks gained support after officials signaled the US was nearing a deal with Iran to reopen the Strait of Hormuz and restore oil flows disrupted by the conflict.
According to the Washington Post, the US and Iran have developed a memorandum that would extend the ceasefire by 60 days as the two sides seek a permanent deal.
If agreed, the Strait of Hormuz would be de-mined and reopened in the interim period while negotiations for a permanent agreement continue.
Secretary of State Rubio said negotiations will still “take a few days” as both sides discuss language in an initial document.
WTI crude oil fell to a 2.5-week low on Tuesday, and the 10-year T-note yield dropped to a 1.5-week low of 4.47%.
However, stock index futures were undercut after the US Central Command said US forces struck Iranian missile-launch sites and boats trying to place mines in the Strait of Hormuz.
Weakness in health insurance stocks and energy producers also knocked the Dow Jones Industrial Average into negative territory on the day.
Tuesday’s US economic data was mixed, with the April Chicago Fed National Activity Index rising +0.29 to a 13-month high of 0.14, stronger than expectations of -0.03.
The Conference Board US May consumer confidence index fell -0.7 to 93.1, a smaller decline than the consensus expectation of 92.0.
The March S&P Composite-20 home price index rose +0.83% year-on-year, below the +0.90% expected and the smallest annual gain in more than 2.5 years.
The International Energy Agency said in a recently released monthly report that global oil inventories declined at a rate of about 4 million barrels per day in March and April, with the market set to remain “severely undersupplied” until October even if the conflict ends next month.
Goldman Sachs estimates that the current disruption has drawn down nearly 500 million barrels from global crude stockpiles, with the drawdown potentially reaching 1 billion barrels by June.
As of Tuesday, 83% of the 475 S&P 500 companies that reported Q1 earnings have beaten estimates, with Q1 S&P 500 earnings projected to climb +12% year-on-year according to Bloomberg Intelligence.
Chipmakers led Tuesday’s gains, with Micron Technology (MCHP) closing up more than +20% after UBS raised its price target on the stock to $1,625 from $535, and ON Semiconductor (ON) closing up more than +10%.
Western Digital (WDC) closed up more than +8%, while Sandisk (SNDK) and Advanced Micro Devices (AMD) each closed up more than +7%.
Airlines also moved higher as falling crude oil prices reduced fuel costs, with American Airlines Group (AAL) closing up more than +7% and Alaska Air Group (ALK) closing up more than +6%.
Rocket and satellite companies surged after SpaceX filed to become the largest-ever initial public offering, with Redwire (RDW) closing up more than +26% and Firefly Aerospace (FLY) closing up more than +18%.
Energy producers retreated as crude prices slid, with Devon Energy (DVN) closing down more than -4% and Chevron (CVX) closing down more than -3% to lead losers in the Dow Jones industrials.
AutoZone (AZO) closed down more than -8% to lead losers in the S&P 500 after reporting Q3 net sales of $4.84 billion, below the consensus estimate of $4.87 billion.
Intuit (NASDAQ: INTU) closed down more than -4% after Mizuho Securities cut its price target on the stock to $500 from $600.
ECB Executive Board member Isabel Schnabel said that even if there is a quick resolution to the Middle East conflict, “I think a rate hike by the ECB in June will be needed,” adding that “given the high persistence of the energy shock, I believe that the negative impact on economic growth will also be stronger” than initially expected.
ECB Chief Economist Philip Lane said the ECB will probably raise its quarterly inflation outlook at next month’s policy meeting as the Iran war keeps energy prices elevated.
Swaps are discounting a 91% chance of a +25 basis point ECB rate hike at its next policy meeting on June 11, while markets are pricing just a 3% chance of a -25 basis point FOMC rate cut at the June 16-17 meeting.
