Stocks enjoyed tremendous gains on Monday as geopolitical risks de-escalated significantly following the back-and-forth exchanges between the U.S. and Iran over the past few days. The U.S. and Iran have confirmed that an initial framework agreement to end the conflict and reopen the Strait of Hormuz has been signed. Global investors were relieved by the development and rotated into risk assets.
AI and AI-adjacent stocks soared, while other stocks posted only moderate gains. The Dow Jones Industrial Average, an index with relatively limited exposure to AI, rose 469 points to 51,671. The NASDAQ advanced 3.07% to 26,684 because of its heavy exposure to AI. The S&P 500, commonly seen as a more balanced index, ended the day 1.65% higher at 7,554. Defensive sectors experienced minor capital outflows as investors rotated into riskier assets. The energy sector ended the day significantly lower as expectations for future oil prices shifted downward.
The bond market, however, did not react to the news in the same way. The U.S. 5-year Treasury yield declined by 2 basis points, and the 10-year yield declined by a mere 1 basis point. The Fed futures market is still pricing in a possible rate hike by December. Nevertheless, gold prices have recovered to above the 4,300 mark.
Today’s economic data did not show significant divergence from expectations, although most metrics fell short of forecasts. Industrial production barely increased, and industrial capacity utilization was exactly as expected in May. Homebuilders have become more pessimistic as mortgage rates remain elevated and material costs stay high.
Additional real estate-related data will be released to help gauge the near-term supply of housing. Adams Wealth Advisors will be back to provide further updates.