The North American session trended strongly towards A Risk toneAs stocks rise, oil prices ease, and yields decline modestly. The backdrop to the move was largely driven by renewed diplomatic momentum, as talks between the US and Iran appear to be gaining momentum – with Pakistan playing a central role. While the headlines throughout the day were at times inconsistent and even contradictory, the broader narrative suggested that Re-engage rather than escalate.
US envoy Witkoff and Jared Kushner are reportedly on their way, while Iranian Foreign Minister Abbas Araqchi is also expected to be in the region. Current indications are that all parties may first meet separately with Pakistani officials, with more direct engagement likely to emerge late Monday. It is clear that the markets are choosing to focus on Possibility of de-escalationThis optimism helped extend the rise in US stocks.
This optimism has translated into… Record performance on Wall Street. The Nasdaq and S&P 500 closed at all-time highs, with the S&P 500 up 0.80% and the Nasdaq up 1.63%. Leadership once again came from big tech, with Nvidia, Alphabet and Amazon all finishing at record highs. Meanwhile, Intel stole the show with a stunning gain of more than 23%. Intel’s turnaround highlights how quickly sentiment can shift — what was recently a name avoided is now being embraced, even at soaring valuations near an 80x forward P/E. It’s a reminder of that Markets don’t wait for perfection, they expect it. Either this is so, or markets are inefficient and subject to sometimes wild, irrational movements.
Looking ahead, earnings will take center stage next week and could bring new volatility. Wednesday includes reports from Amazon, Alphabet, Meta, and Microsoft, a heavy lineup that will test the sustainability of the current rally. On Thursday, Apple, Caterpillar and Merck follow suit, adding more depth to the technology and industrial sectors.
In fixed income, yields declined but remained within recent ranges. The two-year yield fell by 4 basis points to 3.784%, while the 10-year bond yield fell by 1.7 basis points to 4.305%. Despite today’s decline, yields still moved higher during the week, with 10-year yields up 5 basis points and 2-year yields up 7.9 basis points. Attention now turns to the Federal Reserve, as the Federal Open Market Committee is scheduled to meet next Wednesday. Expectations are firmly based on no change in interest rates, with the current target range centered around 3.75%. The focus will instead be on Direction and toneEspecially as markets weigh geopolitical risks against easing inflation pressures.
In the forex market, the US dollar weakened as traders took note of an improving risk backdrop and the possibility of lower geopolitical tensions. Low oil prices and expectations of lower inflation in the future also contributed to this move. Growth-sensitive currencies and commodities led the gains, with the New Zealand dollar and British pound both rising 0.50%. The euro advanced 0.32%, while the Australian dollar rose 0.34%, reflecting a broader shift away from defensive positions.
Oil prices told a slightly more nuanced story. West Texas Intermediate crude for June delivery fell 0.87% to $95, while July crude fell 0.74% to $90.15, reflecting optimism about supply stability if tensions ease. However, Brent crude oil painted a more cautious picture, rising $1.11 (1.08%) to $106.20 – suggesting that… Not all market participants are completely convinced that risks have been removed.
Bottom line: Markets are leaning toward more optimistic geopolitical rhetoric, pushing stocks to record levels and pressuring the dollar. However, with big earnings, the Fed’s decision, and continued geopolitical uncertainty ahead, the current calm may be fragile.
