US stocks dip as oil climbs after Iran shuts Strait of Hormuz

The S&P 500 fell 0.3% by early afternoon in New York, erasing earlier gains as Brent crude rose above $88 a barrel. Energy, utilities and industrial shares gained, but large-cap technology stocks dragged the index, with the Nasdaq 100 down 0.4%.

Nationwide Funds Group chief strategist Mark Hackett said the lack of progress on a peace deal with Iran and higher oil prices are putting “some modest pressure” on equities, but investors are taking the news in “relative stride” compared with last week’s rally.

The market is awaiting U.S. consumer-price and producer-price reports that will influence expectations for a Federal Reserve rate hike in September. Bloomberg data show that the recent oil price rise has lifted the perceived probability of a hike to nearly 50%.

Analysts remain divided on the near-term inflation outlook. Douglas Beath, global equity strategist at Wells Fargo Investment Institute, warned that “elevated refined energy product prices and some increasing stickiness in core services – especially rents and medical care – make a less sanguine near-term inflation outlook.”

Citigroup analyst Andrew Hollenhorst expects the CPI to show cooling in non-energy prices, shifting focus back to domestic economic drivers. Economists in a Bloomberg survey project a 0.1% month-over-month rise in July CPI after a 0.4% decline in June, with core CPI possibly falling to its lowest year-over-year level since March 2021.

“Investors are increasingly pricing a scenario in which inflation continues to ease, the Fed remains patient and earnings growth justifies elevated valuations,” wrote Daniela Hathorn, senior market analyst at Capital.com.

Hathorn added that a benign CPI report could reinforce that view, while a hotter-than-expected reading might push Treasury yields and the dollar higher, forcing markets to reassess recent optimism about policy and valuations.

The National Federation of Independent Business reported that small-business optimism rose to a one-year high in July, with the highest job-addition plans since October 2022 and easing inflation concerns. At the same time, existing-home sales fell to a three-month low as high prices and mortgage rates weighed on the housing market.

Technology earnings are also in focus, with Coreweave Inc. and Super Micro Computer slated to report after the market close. Bespoke Investment Group noted that technology firms are raising guidance faster than any other sector this earnings season.