Stocks, bonds rise on Hormuz hopes

U.S. stocks and Treasuries climbed on May 20 as oil prices fell after President Donald Trump said negotiations with Iran were in the “final stages,” prompting traders to bet that a deal could ease pressure on energy flows through the Strait of Hormuz. Reuters reported that benchmark U.S. Treasury yields and crude prices both dropped as investors watched for signs of progress in talks aimed at ending the war in the Middle East. The move gave Wall Street relief after days of pressure from rising yields and oil-linked inflation fears. By Thursday, the Dow Jones Industrial Average closed at a record, even as oil and yields remained volatile. ### Why did markets react to Hormuz headlines? The Strait of Hormuz is one of the world’s main oil shipping chokepoints, and traders have treated any sign of disruption there as a direct threat to global supply. Reuters said hopes of a U.S.-Iran agreement lifted sentiment because lower risks around Gulf shipping could ease the supply concerns that had pushed crude higher. Shipping data cited by Reuters showed two Chinese oil tankers exited the strait on May 20, adding to tentative signs of reduced pressure on the route. (money.usnews.com) Trump said on May 20 that the United States was willing to wait a few days for the “right answer” from Iran, while warning of further attacks unless Tehran agreed to a deal. Those comments helped reverse part of a recent surge in oil prices that had fed through to bond yields and weighed on equities. (money.usnews.com) ### Which assets moved the most on May 20? Reuters reported that U.S. crude settled down $5.89 at $98.26 a barrel and Brent crude fell $6.26 to $105.02. The yield on the benchmark 10-year U.S. Treasury note dropped 9.4 basis points to 4.576% from 4.669% late on May 19. On Wall Street, the Dow rose 645.47 points, or 1.31%, to 50,009.35, the S&P 500 gained 1.08%, and the Nasdaq added 1.55%. (money.usnews.com) Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, told Reuters: “There’s renewed positive sentiment because oil prices are down, yields are down.” He added that “higher oil prices for longer put the Fed in a corner,” underscoring how closely traders were linking energy prices to monetary policy. (money.usnews.com) ### Why did bonds rise with stocks? Treasury prices rose because lower oil prices reduced some immediate concern that war-related energy shocks would keep inflation elevated. Reuters said benchmark yields had recently reached multiyear highs on war-driven inflation fears before retreating on May 20. That matters because falling yields can support equities by easing pressure on borrowing costs and valuations. (money.usnews.com) CNBC reported that on May 21 the 10-year Treasury yield later slipped to 4.564% and the 30-year bond yield fell more than 2 basis points to 5.09% as oil pulled back again. The Dow gained 276.31 points to a record 50,285.66, while the S&P 500 and Nasdaq also finished higher. ### What could interrupt the relief trade? Reuters reported on May 21 that Iran’s supreme leader had directed that the country’s near-weapons-grade uranium stockpile should not be sent abroad, hardening Tehran’s position on one of Washington’s main demands. (money.usnews.com) CNBC said oil initially jumped on May 21 after Reuters reported that development, before prices later fell back. (cnbc.com) June 7 is the next scheduled checkpoint for oil traders. Reuters reported that seven leading OPEC+ producers are likely to agree to a modest hike in July output when they meet that day, even as deliveries for several members remain disrupted by the Iran war. (kitco.com) (usnews.com)