Stocks Rally as Oil Plunges on Reopening of Hormuz Strait

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(Bloomberg) — US stocks rallied Friday after Iran said it would open the Strait of Hormuz following the truce between Israel and Lebanon, promising to ease an oil shock that has shadowed the global economic outlook ever since President Donald Trump started the war seven weeks ago.

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The S&P 500 Index climbed 0.8% after the opening bell Friday, hitting another record in the process. The tech-heavy Nasdaq 100 Index gained 0.7%, while the Dow Jones Industrial Average rose rose 1.4%. The VIX dropped, oil fell and bond yields tumbled as traders wagered the Federal Reserve will be able to resume cutting interest rates before the year is out. 

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The gains came after Iran Foreign Affairs Minister Abbas Araghchi said all commercial ships can now pass through the Strait of Hormuz, an oil choke point which Iran intends to open given the ceasefire in Lebanon. The move, subsequently confirmed by Trump, fanned optimism that US and Iran will be able to strike a deal to conclude the conflict.

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“It’s refreshing that this is the first Friday trading session in well over a month where there isn’t this underlying fear heading into the weekend, which is another sign that this market correction has likely run its course,” said Paul Stanley, chief investment officer at Granite Bay Wealth Management.

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Stocks have been on a tear this month, with the S&P 500 rising every day but one. The Nasdaq 100 is is headed for its 13th straight day of gains, which would mark its longest winning streak since 2013.

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“The equity market went from oversold to overbought in no time,” said Michael O’Rourke, chief market strategist at JonesTrading Institutional Services LLC. 

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It took the S&P 500 just 11 days to flip into overbought territory Thursday, as measured by the 14-day relative strength index. That has only been outpaced by a faster rally in 1982.

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The speed of the turnaround has some strategists concerned that prices no longer factor in the downside risk of higher inflation or slower growth — both of which loom as oil prices remain elevated.

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“Bull markets are said to ‘climb a wall of worry,’ but the market scaled this latest wall remarkably quickly,” said Brian Jacobsen, chief economic strategist at Annex Wealth Management. “Markets are sometimes too quick to declare an all-clear before the full impact of recent disruptions has worked its way through the system. Patience is a virtue in life and in investing.”

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Earnings season continues to produce mixed results. Truist Financial Corp. shares slipped on a provision for credit losses, despite an earnings per share beat. Netflix Inc. is the worst-performing stock in the index, plunging after providing a disappointing second-quarter outlook, which prompted price target cuts at Barclays and JPMorgan.

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Investors parsing the path of interest-rate cuts will hear from San Francisco Fed President Mary Daly and Richmond Fed President Thomas Barkin on Friday. The central bank’s communications blackout period begins Saturday ahead of its next policy decision on April 29, though a hearing for Kevin Warsh, picked by Trump as the next Fed chair is expected next week.

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Sectors to Watch

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—With assistance from Neil Campling.

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