Article published at 9:00 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- Markets are sharply higher amid hopes of 60-day ceasefire on Friday
- Fed Reserve kicks off Kevin Warsh era
- SpaceX options trading opens Tuesday
An interim peace deal reached between the U.S. and Iran yesterday to end the four-month war is pumping positive market activity in the early going. The memorandum of understanding is set to be inked on Friday in Geneva, Switzerland, kicking off a 60-day ceasefire period as the two nail down specifics of the accord.
President Trump said the Strait of Hormuz would reopen toll-free on Friday too, sending WTI crude prices tumbling 5% to $80 a barrel, their lowest level since early March. While the sharp decline is welcome news, it doesn’t totally end the price volatility. The recovery process of oil reserves, which were severely depleted, will take time, maybe months, to get back in full step.
Investors cheered the news, propelling futures on the three major indices sharply higher. The Dow Jones Industrial Average was advancing better than 1%, while the Nasdaq was heading higher by more than 2% and the S&P 500 by 1.3%. Treasury yields also calling, with the 30-year at 4.9%
In other market news, Fox Corp. said it will purchase Roku, the streaming channel, in a $22 billion deal that brings “the most valuable live content portfolio in video consumption with the preeminent streaming platform,” according to Fox Chief Executive Lachlan Murdoch. Roku’s 100 million subscribers also gives Fox an interesting way to expand its sports coverage.
Watch too where AI-heavy firms stocks are headed this week. Shares of Micron, Super Micro and Marvell are all moving to the upside with the market’s rising tide. Last week, they were the boats that were sinking the fastest.
The main event this week is the Federal Open Market Committee meeting on Tuesday and Wednesday. Of course, SpaceX is likely to continue dominating market activity given its historic standing and what happens when options trading begins tomorrow.
On the Fed front, this marks the onset of the Kevin Warsh era, who has said he wants the Fed to make more decisions at meetings and to keep their thinking more on the down-low than they are now. The group of rate-setters, however, will give us direct information Wednesday on where interest rates are headed in the near-term.
The central bank is widely expected to keep them steady in the 3.5% to 3.75% range. The prospect of a rate hike in December has dimmed somewhat since last week, according to the CME’s Fed Watch tool. However, a move upward is edging toward March’s meeting. Of course, what the markets teach us is that momentum can shift gears quickly and without notice.
Watch, too, not what the FOMC says, but what it doesn’t say. After remarks from the April Fed meeting, the FOMC may remove the “easing bias” comment from its last statement. Doing so typically implies that the FOMC is taking rate cuts off the table amid troubling economic data, such as to what we saw last week with the Consumer Price Index report. It’s so-called “headline report” pushed inflation up to 4.2%, its first time over 4% in three years. However, core inflation, which strips out food and energy prices, settled at 2.8%.
Remember, also, that the Bureau of Labor Statistics reported a surprisingly 172,000 non-farm jobs were added in May, outpacing Wall Street’s expectations. The unemployment rate was unmoved at 4.3%. The Fed aims for a 2% unemployment rate.
What also will be front of mind for many watching the Fed is what Warsh may say, especially if he shrugs off inflation issues. President Trump, who nominated and widely supported Warsh, has been pounding the table for interest rate cuts since 2019. Stay tuned, Warsh’s stance on it could move markets.
On the SpaceX front, it will be interesting to see how the stock price shakes out. IPOs are noted for their volatility, but Friday’s debut was surprisingly smooth. The stock was initially priced a $135 a share, but opened at $150 each, and jumped as much as 30% before closing at $160.95, a 19% gain. Can it hold on to that kind of momentum? Most analysts have a buy recommendation on the stock, but at least one already has a sell.
We’re likely to see some anxious and explosive volume when options trading begins Tuesday. By opening those gates, it allows folks who didn’t want to spend $160 or more a share an opportunity to participate at a much more reasonable level in terms of pure dollars. They will have a chance to hedge the downside by shorting the stock, which a purchase in an IPO doesn’t allow.
Have a great trading day!
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