US stocks showed strength on Monday after an initial drop due to the US bombing Iranian nuclear sites. By lunchtime, the Dow Jones was up 0.16%, the S&P 500 rose 0.34%, and the NASDAQ increased by 0.43%. Worries about possible Iranian retaliation had impacted the markets. However, there were growing thoughts that Iran might wait before launching counterattacks, despite its threats to close the Strait of Hormuz, an important route for over 20% of the world’s oil supply.

Oil Prices and Economic Factors

Oil prices dipped slightly, with WTI Oil falling less than 1% to $73.37. Positive economic indicators helped the situation, as S&P Global’s PMI for manufacturing remained at 52, beating the expected 51. Existing home sales for May also increased by 0.8%, contrary to the predicted drop of 1.3%. Federal Reserve official Michelle Bowman hinted at a possible rate cut by July, which provided additional support. Industry news was also favorable, with Boeing up over 1% following safety updates, while IBM and Tesla stocks saw significant gains. Markets started the week strong, shaking off early anxiety tied to the airstrikes in Iran. After a cautious morning, stocks rose as traders processed news from the Gulf. The small change in oil prices suggested the market was reacting more to talk than action—for now. The earlier tensions from military actions and heated discussion around the Strait of Hormuz briefly increased volatility. However, with no immediate retaliations and energy flows stable, concerns about lasting disruptions vanished quickly. Current trading volumes and options interest in crude contracts show a measured approach, avoiding short-term panic.

Economic Data and Policy Signals

Economic data continued to support the markets. The S&P Global PMI remaining above 50 indicates ongoing manufacturing growth, despite tighter financial conditions. Housing data also surprised positively, with existing home sales showing stronger demand. This rebound, especially after a weak forecast, stabilizes asset classes sensitive to yields and mortgage rates. Bowman’s remarks hinted at potential easing sooner than previously expected, with July now considered by some market players as the time for cuts. This opens up new opportunities for positive speculation in the near term. While this doesn’t ensure anything, especially with mixed views within the Fed, the dovish message was clear enough to shift market positioning. Beyond broader economic and geopolitical issues, specific sectors made significant contributions. Boeing’s stock increase followed what seems to be renewed confidence in addressing long-standing safety concerns. This timing is interesting, as safety issues were back in the news just days ago. Still, it appears that traders viewed recent regulatory discussions as progress toward long-term fixes. Tech and auto sectors also performed well. Tesla’s gains came from strong delivery forecasts and excitement around its software plans. Meanwhile, IBM showed unexpected strength in cloud margins, attracting bullish interest in both sectors when positive results emerged. We believe short-term options strategies will remain sensitive to geopolitical developments. However, two key indicators—volatility selling and low out-of-the-money skew in indices—suggest range-bound price movements in the near term. Although risk appetite hasn’t fully bounced back, it hasn’t completely faltered either. As we watch implied volatility curves, it’s clear that near-expiry contracts are quick to adjust to geopolitical risk. Yet, many are hesitant to extend protection beyond that. We’re looking to see if a more defined trend emerges. For now, our strategy leans towards selling at the top of a range and favoring spreads over straight delta-heavy positions. The activity around rates volatility indicates a shift rather than a pullback—market pricing reflects more emphasis on potential Fed easing in the coming quarter rather than in 2025. This is particularly noteworthy as the US dollar’s performance levels out and yield curve trades show a growing consensus surrounding a summer pivot. In this period, we can expect frequent short-term fluctuations, but directional bets still feel measured without clear news signals. We’ll stay agile, focusing on relative value and market dislocations instead of making bold bets on broader trends—at least for now. Create your live VT Markets account and start trading now.

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