US stocks close mixed: Dow four-day winning streak, Nasdaq and S&P retreat

Global stock markets edged up Tuesday, after a rebound the previous session on news of a peace agreement between the US and Iran; US stocks paused after three consecutive days of gains, while SpaceX continued its strong rally, up nearly 50% since listing. On the other hand, after the Bank of Japan raised rates to a 31-year high, investors turned their attention to a packed week of central bank policy decisions.

The Dow rose 328.64 points, or 0.64%, to 51,999.67; the Nasdaq fell 307.60 points, or 1.15%, to 26,376.34; the S&P 500 fell 42.94 points, or 0.57%, to 7,511.

As market optimism over the preliminary US-Iran agreement fades, trading sentiment around Gulf developments becomes cautious, and the overall market enters a more moderate consolidation state.

Diverging trends in European, US, and Asian stock markets

In European markets, the European Stoxx 600 index rose 0.26%, close to Monday's historic high, driven by gains in heavyweights like Schneider Electric and ASML, up 2.7% and 0.6% respectively.

France's CAC 40 rose 0.75%, Spain's IBEX rose 0.59%, UK's FTSE 100 rose 0.71%, and Germany's DAX rose 0.08%.

Asian indices edged higher. Japan's Nikkei 225 closed up 0.1% at 69,404.50, briefly breaking above 70,000 points for the first time in history, after the BOJ raised rates to a 31-year high.

S&P 500 futures edged up, after the benchmark index had risen about 2% since Thursday. Nasdaq futures rose 0.3%, with tech stocks boosted by sentiment from SpaceX's strong IPO performance last week. The company's shares rose nearly 20% on Monday, with market cap exceeding US$2 trillion, and added another 4% pre-market Tuesday, total market cap US$2.6371 trillion.

Nvidia, the world's most valuable AI chip maker, unexpectedly entered the bond market, issuing US$25 billion in bonds. The company said funds would be used for general corporate purposes and to establish a liquidity benchmark for future financing. Nvidia shares edged down pre-market.

Oil price decline intertwined with geopolitical risks

Brent crude futures settled at US$78.96 per barrel, down US$4.21, or 5.06%, as multiple strategists lowered oil price forecasts.

Nevertheless, shipping industry sources in Asia and Europe said it may still take weeks to restore confidence in passage through the Strait of Hormuz.

Meanwhile, crude oil prices are heading for the longest losing streak this year. Both Morgan Stanley and Goldman Sachs have lowered oil price outlooks, with Goldman Sachs expecting Gulf exports to return to pre-war levels by end-July, a month earlier than previously expected.

Goldman Sachs analysts said: "Although the details of the agreement remain unclear, we now assume Gulf exports will recover to pre-war levels by end-July." The bank also lowered its oil price forecast, expecting Brent crude to average US$85 in Q4, down from the previous US$90.

However, ING strategist Warren Patterson noted that because inventories were heavily drawn during the war, energy consumers may enter a restocking phase, meaning there may not be much further downside for oil prices in the short term.

US-Iran agreement still in question

President Trump's announcement of a deal with Iran initially boosted market sentiment but also created potential friction between the US and Israel. The market is reassessing the feasibility of Trump's statement that the Strait of Hormuz will fully reopen by Friday. Iran's Foreign Ministry said Monday the agreement would allow it to charge fees for shipping services through the strait, diverging from Trump's claim of "free passage."

Jefferies economist Mohit Kumar said: "There are still several key questions about the sustainability of the US-Iran agreement, including differences in the description of the agreement version between Trump and Iran."

Westpac analysts said: "Although this is an important diplomatic breakthrough that should reduce sources of market volatility, the agreement's durability will still be tested." They noted that key issues including Iran's nuclear program still need to be resolved through follow-up negotiations.

Oil prices have fallen to their lowest since March, giving back almost all gains during the geopolitical conflict, thus easing inflation pressures as policymakers assess the rate path.

Japan and Australia kick off 'super central bank week'

The US 10-year Treasury yield fell 2 basis points to 4.45%. ING rate strategists noted the market reaction is relatively restrained so far, but real rates have structurally risen about 40 bps from pre-war levels, meaning 10-year yields may stay elevated for a long time.

Eurozone government bond yields also held steady, Germany's 10-year bund yield held at 2.955%.

Commerzbank strategist Erik Liem said that while yields remain below key levels, the US-Iran agreement is more like a continuation of the 'local ceasefire' market reaction since late May. He noted details remain unclear, especially the Iranian nuclear issue and the opening mechanism of the Strait of Hormuz, which still require further negotiation.

The dollar index held near 99.6, the euro rose 0.1% to US$1.1605, sterling also rose 0.1% to US$1.342, with markets awaiting the Bank of England meeting in two days, which is not expected to produce policy changes.

The BOJ and the Reserve Bank of Australia have already kicked off this week's 'super central bank week.' The BOJ raised its benchmark rate by 25 bps to 1%, the highest since 1995; the RBA paused rate hikes for the first time this year.

Focus on Fed decision

Wall Street's focus now turns to the Fed meeting this week, which will be the first under Kevin Warsh. The market widely expects the Fed to hold rates steady on Wednesday, but attention will center on how Warsh balances inflationary pressures with the expected decline in energy inflation in the post-meeting press conference.

Panmure Liberum analyst Joachim Klement said: "The market will continue to focus on the Fed and how Kevin Warsh handles the interplay between rising inflation pressure and the expected decline in energy inflation after the reopening of the Strait of Hormuz."

The Bank of England and Swiss National Bank are also expected to hold this week. Before that, the ECB just implemented its first rate hike in nearly three years last week, with President Lagarde warning that inflation pressures from the Iran conflict are spreading from the energy sector to broader areas.

Focus stocks

Musk's SpaceX shares rose another 4%, extending the previous sharp rally. SpaceX's IPO price was set at US$135 per share, officially listed last Friday. The stock closed at about US$201, up 49% from the IPO price.

Robinhood announced it will lay off about 10% of its workforce, shares rose over 9%. Robinhood expects to incur about US$20 million in severance and related benefit costs.

Yum! Brands announced it will sell its Pizza Hut business to private equity firm LongRange Capital for US$2.7 billion, shares rose 1.94%.