US Stocks Decline Amid Heightened Tensions Over Strait of Hormuz

Global Markets Tumble Amid Strait of Hormuz Tensions

A flare-up in tensions over the Strait of Hormuz sent stocks lower as oil prices rose on concern that a prolonged closure of the waterway could worsen energy disruptions, boost inflation, and slow the economy.

The standoff drove Brent to $103, with investors anxious about the potential consequences of a prolonged closure. The record-breaking rally in the S&P 500 paused, as traders also sifted through earnings reports. Software shares took a hit as International Business Machines Corp. and ServiceNow Inc.'s results failed to ease concerns about artificial-intelligence disruption. Tesla Inc. declined after boosting its spending plan. On a more positive note, Texas Instruments Inc.'s solid outlook lifted chipmakers for a 17th straight day.

US Military Action in Strait of Hormuz

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President Donald Trump ordered the US Navy to shoot any boat putting mines in the strait, while the military said it intercepted two oil supertankers that tried to evade its effort to prevent passage to and from Iranian ports. Tehran noted that it will not take part in negotiations while a US naval blockade on its ports is in place, and Iran state TV cited the foreign ministry as saying its armed forces are ready to respond to further threats. Meantime, Israel's defense minister said his country is poised to resume the war.

Traffic through the Strait of Hormuz remains largely frozen, with only occasional movements of Iran-linked vessels breaking the lull.

Market Outlook Amid Geopolitical Risks

Despite lingering geopolitical risks, the S&P 500 is poised for its best month since 2022 amid strong corporate profits, the revival of the AI trade, and an otherwise resilient economy. Nearly 80% of the US equity benchmark's firms have beaten first-quarter earnings estimates so far, according to data compiled by Bloomberg.

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While volatility understandably increased with the onset of the Iran conflict, financial markets have proven relatively resilient, noted Adam Hetts and Oliver Blackbourn at Janus Henderson. "Investors coalesced around the critical assumption that hostilities and the associated disruptions to the global economy would be short-lived," they said. "Our sentiment and positioning indicators showed drawdowns within several market segments reaching capitulation territory and could therefore represent attractive entry points."

US Economic Front

On the economic front, US business activity picked up in April, fueled by the strongest manufacturing growth in nearly four years. Jobless claims rose last week, though they remain at a level consistent with low layoffs.