US stocks pull back as traders evaluate new Middle East developments
Recent moves feel ‘like two or three steps forward and one step back’, says one analyst
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[NEW YORK] US stocks declined on Tuesday (Jun 2) as traders parsed the latest developments in the Middle East.
The S&P 500 was down 0.09 per cent at 9.48 am in New York, pausing an eight-session rally – its longest streak of gains in more than a year. Meanwhile, the technology-heavy Nasdaq 100 slipped 0.1 per cent. Brent crude fell 0.07 per cent to US$94.91 a barrel.
“We appear to be moving towards a memorandum of understanding,” said Rupert Thompson, chief economist at iBoss. “However, it still feels like two or three steps forward and one step back,” he added, referring to the skirmishes between the US and Iran as well as fighting in Lebanon.
US President Donald Trump remained optimistic on the US being able to reach an interim peace deal with Iran soon, even after Teheran had threatened to suspend talks because of Israel’s escalating attacks in Lebanon.
Speaking to ABC News on Monday, Trump said that a memorandum of understanding with Iran to reopen the Strait of Hormuz could be reached “over the next week”. Separately, he said that discussions with the Islamic Republic were continuing “at a rapid pace”.
Developments on Monday highlighted how fragile things are in the Middle East. An intervention from Trump led to Israel and Hizbollah agreeing to stop fighting.
“Attention will now shift to the new round of talks between Israel and Lebanon,” CIC economists including Benoit Rodriguez and Anne-Lise Cornen wrote in a note published on Tuesday.
“Beyond the discussions between Lebanon and Israel, negotiations between Washington and Teheran have still not been successful. With each passing day, uncertainty persists and oil prices remain high, exacerbating the economic consequences.”
AI keeps winning
Meanwhile, the rally in artificial intelligence beneficiaries continued, with Hewlett Packard Enterprise (HPE) surging 25 per cent after reporting results on Monday evening.
The company’s outlook for annual sales topped estimates, for which it cited massive growth in AI-fuelled demand for its servers and networking.
HPE’s results highlight a renewed energy around AI, which had taken a backseat to the so-called “old economy” earlier this year amid concerns around ballooning spending plans and sky-high valuations.
While cyclicals had assumed early stock leadership, that trade has now stalled amid the ongoing conflict in Iran, said John Belton, portfolio manager at Gabelli Funds.
“Entirely separate from the geopolitical backdrop, accelerating excitement around AI technology has driven an extraordinary rally in tech stocks,” he added.
Euphoria over AI could be seen on Tuesday as semiconductor companies rallied amid a continuing rotation into the sector. Marvell Technology was among the biggest advancers after Nvidia CEO Jensen Huang said it would be the next company to hit US$1 trillion in valuation.
However, traders still have some reservations over the levels of spending going toward the technology.
Alphabet fell 4.1 per cent during the premarket session as the Google parent looks to raise US$80 billion through a package of equity offerings in an attempt to fund ambitious AI spending plans.
“Alphabet’s US$80 billion equity raise is a clear sign that the AI arms race is moving into a more capital-hungry phase, but the structure matters,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.
“It’s certainly a huge chunk of money to be raising, but the devil’s in the details on this.” BLOOMBERG
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