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(Bloomberg) -- Investors riding a scorching run of market momentum are likely to face a reality check when trading resumes Sunday night New York time after President Donald Trump rejected the latest peace offering.
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Trump labeled Iran’s latest response to his proposal to end the 10-week conflict with the US is “TOTALLY UNACCEPTABLE.” Iran offered to transfer some of its stockpile of highly enriched uranium to a third country in its response to the latest US proposal to end 10 weeks of war, but rejected the idea of dismantling its nuclear facilities, the Wall Street Journal reported. Iran disputed the report, according to Iran’s semi-official news agency Tasnim.
Highlighting ongoing tension in a conflict that has killed thousands and driven up oil prices, a drone strike on Sunday briefly set a cargo vessel ablaze off Qatar in the Persian Gulf.
The dollar was higher against major peers in early trading. Futures trading in stocks, bonds and energy resumes in earnest at 6 p.m. New York time.
“Trump’s rejection of Iran’s latest peace plan sees the week beginning in a ‘risk-off’ mode, reversing some of the price action we saw last week,” said Jason Wong, a strategist at Bank of New Zealand. “This can extend in early trading.”
Trump has proposed that Iran permit passage through the Strait of Hormuz and Washington end its blockade on Iranian ports in the next month. The two sides remain far apart on the question of Tehran’s nuclear program, according to the Journal.
Global stocks surged last week, pushing the S&P 500 and Nasdaq 100 to fresh records, while 10-year Treasury yields rose and crypto jumped. A solid US employment report, along with a drumbeat of strong corporate results, has bolstered speculation that the world’s largest economy remains resilient in the face of energy stress triggered by the Iran war.
“With the earnings season now largely behind us, investors’ focus remains firmly on the Strait of Hormuz and whether tanker traffic through this critical chokepoint improves,” said Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management. “Recent developments have been modestly encouraging.”
About 82% of the S&P 500’s companies have beaten first-quarter profit estimates, according to data compiled by Bloomberg.
Across markets, the success of the momentum strategy — piling into recent winners, effectively — has become a defining feature. Junk bonds and crypto have been drawn in, and one momentum index in equities closed Friday near the highest since the global financial crisis. A gauge of chipmakers jumped 11% in five sessions.
Barclays Plc strategists say the trade has reached extremes that historically foreshadowed selloffs. At Goldman Sachs Group Inc., the trading desk wrote last week that valuations for high-momentum stocks are stretched and positioning is among the highest in recent years, based on prime brokerage data.
Brent crude, the global benchmark, rose 1.2% to settle around $101 a barrel on Friday, but still notched a weekly drop of about 6%. Ship-tracking data compiled by Bloomberg showed Al Kharaitiyat, a tanker carrying Qatari liquefied natural gas, transited Hormuz this weekend. It marks Qatar’s first export out of the region since the crisis began.
“If similar attempts succeed in the coming week, they will provide a key test of the prospect for at least partial resumption of Hormuz vessel crossings,” said Homin Lee, a strategist at Lombard Odier. “We are open to the possibility that the latest alarming headlines about the strait reflect not a slide toward another major confrontation but a form of tacit negotiations over the shape of the post-conflict arrangement.”
Fresh data on consumer prices in the coming week is likely to affirm inflation remains a threat in the US. Economists see a sharp 0.6% increase in the consumer price index for April, based on the Bloomberg survey median estimate. That’s after March’s biggest monthly advance since 2022. The Bureau of Labor Statistics’ report is due Tuesday.
In Friday’s report, April’s nonfarm payrolls rose 115,000 after an even bigger surge in March, marking the strongest two-month increase since 2024, according to Bureau of Labor Statistics data out Friday. The unemployment rate was unchanged at 4.3%.
Still, the Federal Reserve is viewed as likely to remain on hold for now to allow the oil price spike to play itself out. Money market pricing continued to suggest the Fed will keep rates steady this year.
Pimco Chief Investment Officer Dan Ivascyn said surging energy prices tied to Iran’s closing of the Strait of Hormuz create a new challenge for US policymakers who have struggled to bring inflation down to the central bank’s 2% target, the Financial Times reported Sunday, citing an interview.
The “US is further away from that, but you are going to see more tightening as it looks today in Europe, the UK and maybe even Japan, and I wouldn’t take it completely off the table for the US either,” Ivascyn told the FT.
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