Stan Choe
Updated ,first published
Oil prices jumped following a weekend of attacks in the Middle East, while more losses for computer chip companies and other winners of the artificial-intelligence boom dragged stock markets lower.
The price for a barrel of Brent crude oil, the international standard, climbed 9.6 per cent to $US83.30 after the United States and Iran each said the Strait of Hormuz is under its control. Fighting in the region has kept oil tankers from using the strait to deliver crude to customers from the Persian Gulf, which drives up fuel prices worldwide.
The gains for oil prices accelerated immediately after President Donald Trump said he’s reinstating a blockade to prevent tankers carrying Iranian oil from using the strait. He also called for 20 per cent payments on all cargo shipped through it to reimburse the United States for providing protection in the area.
Brent’s price, though, remains well below its wartime peak of nearly $US120 per barrel for its most actively traded contract.
On Wall Street, the S&P 500 fell 0.8 per cent, coming off its fourth winning week in the last five. The Dow Jones Industrial Average dropped 138 points, or 0.3 per cent, and the Nasdaq composite sank 1.6 per cent. The Australian sharemarket is set to dip, with futures at 6.17am AEST pointing to a fall of 11 points, or 0.1 per cent, at the open. The ASX edged higher on Monday. The Australian dollar was trading at US69.18¢.
Chip stocks like Micron Technology helped lead the way lower. Micron fell 4.4 per cent, eating into what had been a stellar rise of 243.1 per cent for the year so far.
Real profits are behind the rise because the AI rush has created surging demand for computer memory and other computing building blocks. But worries are rising that stock prices have shot too high and that the demand may not be sustainable if AI doesn’t deliver as much profit and productivity as expected.
Nvidia fell 3.5 per cent. Because it’s the largest stock on Wall Street by value thanks to the euphoria around AI, it was the single heaviest weight on the S&P 500.
The day’s losses began in Asia, where South Korea’s Kospi index dropped 8.9 per cent. That included a 15.4 per cent plunge for SK Hynix’s stock in Seoul, the worst since it began trading in 1997.
The South Korean tech giant just launched shares of its stock trading in the United States on Friday, raising roughly $US26.5 billion ($38.3 billion). Those shares jumped 13.1 per cent in their first day of trading, but they fell 9.3 per cent Monday.
Other areas of the AI industry held up a bit better, and Taiwan Semiconductor Manufacturing Co.‘s shares in Taiwan rose 1 per cent. The chipmaker said its revenue in June soared nearly 68 per cent from a year earlier, bringing its total revenue growth for the first half of the year to 35.6 per cent from a year earlier.
But TSMC’s stock that trades in the United States fell 2.9 per cent later in the day.
All told, the S&P 500 fell 60.06 points to 7,515.34. The Dow Jones Industrial Average dropped 138.37 to 52,498.64, and the Nasdaq composite sank 408.43 to 25,873.18.
Elsewhere, a group of 12 states sued Paramount Skydance seeking to block its $US110 billion bid to buy Warner Bros. Discovery, alleging the blockbuster Hollywood deal would leave viewers with higher prices and fewer choices for movies and television.
The antitrust lawsuit, filed in California federal court, alleges the deal would harm competition for film distribution and the licensing of cable TV channels. California and 11 other states with Democratic attorneys general joined the challenge, creating the largest legal hurdle to the deal after the Trump administration cleared the transaction without conditions in June.
“After this merger, for every dollar generated by wide-release theatrical films and basic cable channels in this country, the combined company will pocket more than a quarter,” the states alleged in the complaint. “This merger, in short, would create a media behemoth.”
Much of Wall Street’s attention this week will be on profit reports from companies saying how much they earned during the spring. On Tuesday alone, Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs and Wells Fargo are all releasing their latest quarterly results.
Analysts are forecasting that companies in the S&P 500 index will deliver overall growth of 23.6 per cent from a year earlier, according to FactSet. If they’re right, it would be the second straight quarter of growth better than 20 per cent.
Companies across industries will need to deliver strong growth to justify the big moves their stock prices have made. Indexes are near records despite their sharp recent swings due to worries around AI stocks.
Companies usually turn in results that top analysts’ expectations, including in 37 of the past 40 quarters, according to FactSet. If they do so again by the usual margin, earnings growth for S&P 500 companies in the latest quarter could end up being the best since 2021.
In the bond market, Treasury yields rose with the price of oil. The yield on the 10-year Treasury climbed to 4.61 per cent from 4.56 per cent late Friday and from just 3.97 per cent before the war with Iran began.
Yields have risen worldwide on worries about expensive oil and high inflation, which could push the Federal Reserve and other central banks to raise interest rates. Higher rates can keep a lid on inflation, but they also slow the economy and hurt prices for all kinds of investments.
In stock markets abroad, indexes moved modestly in Europe.
In Asia, the swings were sharper, beyond South Korea’s plunge. Stocks fell 2.1 per cent in Shanghai, and Japan’s Nikkei 225 dropped 1.9 per cent.
AP, Bloomberg
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