With peace talks between the U.S. and Iran stalling and clouds of uncertainty still hanging over the Middle East, advisors and their clients should brace for the prospect of more market volatility.
Oil prices jumped again on Monday as tensions again ratcheted up in the region. Brent crude futures climbed more than 5% to over $100 a barrel, while West Texas Intermediate crude futures are up more than 5% to over $101 a barrel. Oil prices, which soared amid the conflict, fell last week when the U.S. and Iran agreed to a two-week ceasefire that aimed to reopen the Strait of Hormuz.
“Investors were hoping for an Iran deal at this weekend's negotiations, and instead, there is no deal, so investors are now back to the drawing board trying to reassess the fair value of stocks now that it's clear that there is no end in sight to the conflict in the Middle East,” said Clark Bellin, president and chief investment officer, Bellwether Wealth, in a statement. “Anytime there is a repricing in markets, we see volatility.”
On Sunday President Donald Trump wrote on this Truth Social network that Iran had promised to open the Strait of Hormuz, and they “knowingly failed to do so,” adding that “Iran is unwilling to give up its nuclear ambitions.”
“The meeting went well, most points were agreed to, but the only point that really mattered, NUCLEAR, was not,” he said, in a subsequent post.
In a post early Monday, Trump said that the U.S. will blockade ships entering and exiting Iranian ports on 10:00 am ET.
“As Iran tensions increase, oil prices are increasing, and the stock market is still inversely correlated to oil prices,” said Bellwether Wealth’s Bellin. “The big question for stocks going forward is if this upcoming earnings season can be enough of a catalyst to dismantle the close link between stocks and oil, as corporate earnings are what traditionally drive stock prices.”
The Dow Jones Industrial Average is down 0.5%, while the S&P 500 index is flat.
“Big banks will kick off earnings season this week, and the burning question is, which market shows up once earnings season begins: the one fueling this rebound or the one that just delivered stocks’ worst quarterly performance in more than three years?” said Bret Kenwell, U.S. investment analyst at eToro, in a statement Monday.
“Stock prices have moved lower even as earnings estimates have continued higher, and while price tends to lead fundamentals, it’s also prone to overreaction,” he added. “Earnings season should help determine which signal is right and, with any luck, give investors a chance to shift the conversation away from geopolitics and back toward fundamentals.”
Goldman Sachs (Ticker:GS) kicked off a busy week of bank earnings Monday, reporting first-quarter net revenue of $17.23 billion, an increase of 14% on the prior year's quarter and net earnings of $5.63 billion, an increase of 19% on the same period last year. The company earned $17.55 per share, well above the consensus estimate of $16.47 per share.
In a statement, Goldman Sachs said that its revenue increase was primarily primarily the result of higher net revenues in Global Banking & Markets. The company's wealth management business also enjoyed a strong quarter.
JP Morgan (Ticker: JPM) reports first-quarter results before market open Tuesday, as do Citigroup (Ticker:C) and Wells Fargo (Ticker: WFC). Bank of America (Ticker:BAC) reports first-quarter results before market open Wednesday, as does Morgan Stanley (Ticker: MS).
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