Welcome back. Futures are mixed this Thursday morning as Wall Street tries to bounce back from yesterday's selloff, even as US-Iran tensions continue to escalate following fresh overnight attacks. The Nasdaq is leading gains on a chip stock rebound while the Dow struggles to find its footing. Joining me now live from the New York Stock Exchange is Michael Reinking, strategist at the NYSE. Mike, thanks for joining us. We're seeing a split this morning — the Nasdaq climbing on a chip stock rebound while the Dow is still trying to recover. What does that tell you about where investor confidence is right now?
Thanks for having me back. Look, we had another re-escalation with Iran yesterday and markets largely took that in stride. We pulled back a little, we saw the typical conflict playbook — oil prices moving higher, some dollar strength, yields ticking up slightly. But overall it was a pretty tame move. Markets continue to discount the idea of a significant escalation between now and the midterms. This morning what we're seeing is a fairly big move in AI spending beneficiaries. Last week there were stories that Meta was looking to sell some of their excess compute — never confirmed by the company. But there have been reports over the last couple of days, including one this morning, suggesting they are in fact continuing to spend. So chip stocks are bouncing back. On the flip side, there's a Bloomberg story this morning about Starbucks building their own software to potentially displace some third-party inventory management tools, plus a couple of downgrades. That's weighing on the software trade pretty significantly in the premarket. It's a split we've seen ebb and flow quite a bit over the last year.
Let's talk about oil. It rose yesterday and we know there were attacks Wednesday evening. What does oil look like in the futures this morning and what are your expectations?
We have to keep everything in context. Oil pulled back over 20% from its highs and was consolidating right around its 200-day moving average before picking back up yesterday. Overnight we did strike Iran, and the suggestion was that was the last of the strikes — President Trump indicated we were hopefully moving back toward negotiations. We've since seen some missiles fired at Jordan this morning, though they appear to have been intercepted. The question is whether that was a final shot before de-escalation, or whether there's genuine further escalation — that's always the wildcard. On oil prices themselves, I think we stabilise at a higher level as reserves need to be replenished from recent drawdowns. But the demand side is showing some weakness, particularly from China. And interestingly, China also removed some export restrictions on diesel and jet fuel yesterday, which helps dampen the impact of any re-escalation.
The ten-year yield is pushing toward 4.6% this morning. What's behind the move and what should investors be watching for, especially with jobless claims and existing home sales data out today?
Yields have moved back up. Even yesterday when oil was moving higher, the move in Treasuries was very muted — only up one or two basis points. The real focus is inflation. The Fed has been clear about that. Next week's inflation data is going to be the real key for where yields move in the near term. Unfortunately, this re-escalation puts a bid back under oil prices just when we were starting to see a line of sight for inflation to moderate over the coming months. That's now back in question. Markets are starting to price in one to two rate hikes this year. I don't necessarily foresee that — I think the Fed is on hold for the time being. It doesn't serve them any purpose to raise rates right now. They can talk tough, but the minutes from yesterday suggested they don't need to move.
Wrapping up — with everything happening in Iran, the Fed situation, and new data coming — is what we're seeing a genuine recovery or just a pause before more volatility?
We're really in the midst of a consolidation phase. We've had a big move and we're consolidating that. The real catalyst comes in the next couple of weeks as we move into earnings season. It kicks off next week with the banks, and then about a week or two after that we get into technology. Tomorrow there's a pretty significant new issuance with SK Hynix bringing their ADR — we'll see how markets digest that. The real key is how markets react to tech earnings. The numbers are going to be strong — we saw that with Samsung two nights ago, earnings up 18 times year over year, and the stock still sold off seven to ten percent. So strong numbers don't automatically mean a strong reaction. The question is whether any of these tech companies signal that demand was pulled forward in Q1 and Q2, and whether the back half of the year might see some slowdown. If they do, that could trigger some weakness.
It's going to be a very interesting close to the week. A lot happening today and frankly all week. Thanks for joining us again, Michael.
Thanks for having me.
