New York Stock Market Rises for Fourth Consecutive Day Amid Rising Tensions

U.S. equities extended their rally for a fourth straight session on April 6 (local time), despite rising Middle East tensions. The S&P 500 climbed about 0.4%, the Dow Jones Industrial Average gained 0.4%, and the Nasdaq Composite rose 0.5%, continuing a gradual rebound since January’s sharp sell-off. The key variable remains Iran’s actions and the blockade of the Strait of Hormuz. Crude oil traded around $100 a barrel and was highly volatile, but mixed diplomatic and military reports suggesting a possible lifting of the blockade or a cease-fire fostered a belief that the worst can be avoided. While defense and energy stocks paused for breath after their recent surge, beaten-down technology and growth names bounced back on bargain buying.

On the economic and policy front, inflation concerns have not fully subsided. The March ISM services price index jumped well above expectations, reaffirming price pressures in the service sector, and the president of the Cleveland Fed even mentioned the possibility of additional rate hikes if inflation reaccelerates. Nonetheless, the CME FedWatch tool assigns a 98% probability that the Fed will keep rates unchanged at April’s FOMC meeting, with markets assuming a prolonged period of high rates. With few major corporate earnings reports due today, money flowed at the index and sector levels driven by macro and geopolitical developments rather than individual companies. Investors would do well not to be comforted by the short-term rebound but to monitor closely the trajectory of the Hormuz situation and the secondary impact of elevated oil prices on U.S. inflation and Fed policy.