Stocks near record high as oil prices ease inflation fears

The stock market climbed toward its peak on Monday, lifted by a simple shift in the oil markets: the price of crude fell as tensions with Iran eased, and Wall Street's anxiety about runaway inflation began to settle. The S&P 500 rose 1.5 percent, closing just 0.1 percent shy of the all-time high it had set earlier in the summer. The Dow Jones industrial average, a narrower measure of the market, actually broke through to a record, gaining 693 points or 1.3 percent. The Nasdaq composite surged 2.1 percent. The catalyst was straightforward: Brent crude dropped 4.7 percent to $83.77 per barrel after President Trump announced over the weekend that he would delay new military strikes against Iran following appeals from regional allies.

July had been a month of violent swings. Oil prices had careened between $72 and $102 a barrel as traders wrestled with uncertainty about when the conflict with Iran might disrupt the flow of crude through the Persian Gulf. Each time the war seemed to escalate, prices spiked. Each time tensions appeared to ease, they fell. By the end of the month, the S&P 500 had essentially gone nowhere, having climbed and retreated in lockstep with the oil market's gyrations. The real damage from higher oil prices is not just at the pump—it feeds inflation, which in turn pushes up interest rates. The yield on the 10-year Treasury had climbed to 4.75 percent by late Friday. On Monday, as oil eased, that yield sank to 4.68 percent. Still, it remained well above the 3.97 percent level from before the Iran conflict began. Higher borrowing costs ripple through the economy: the average long-term mortgage rate has already jumped to its highest point in a year, making home loans more expensive for households and businesses alike.

The immediate beneficiaries were companies with outsized fuel expenses. United Airlines rose 5.8 percent. American Airlines climbed 5 percent. Norwegian Cruise Line Holdings, which burns fuel at a prodigious rate, jumped 6.6 percent. Boeing added 8 percent after U.S. regulators certified its 737 MAX-7 aircraft for commercial service, clearing a significant regulatory hurdle. But the broader lift came from something deeper: corporate earnings are tracking far stronger than expected. Tyson Foods reported spring profits that beat analyst forecasts, with CEO Donnie King noting that the company's chicken business and prepared foods division—which includes brands like Jimmy Dean and Hillshire Farm—are performing well. Across the S&P 500, companies are on pace to deliver earnings per share for the spring quarter that are 47 percent higher than a year earlier, according to FactSet data. More than half the index has already reported. If that holds, it would mark the strongest earnings growth since spring 2021, when the economy was roaring out of the pandemic. Stock prices, over the long term, tend to follow the path of corporate earnings, and Wall Street had grown anxious that valuations had simply gotten ahead of the fundamentals.

Manufacturing data released Monday also offered encouragement. Growth in U.S. manufacturing accelerated to its strongest pace since 2022, suggesting that the economy has more momentum than some feared. Yet beneath the surface, a persistent unease was visible in the behavior of semiconductor stocks. These companies have soared on the assumption that the artificial-intelligence boom will drive sustained demand for chips and data-center infrastructure. But the question haunting traders is whether that boom will actually produce the profits and productivity gains that justify the current prices. If AI spending disappoints, Big Tech companies could sharply curtail their capital expenditures, and chip stocks could fall hard. Micron Technology exemplified the volatility: it dropped 6.4 percent at one point during the day, then reversed to finish up 0.8 percent. For the year to date, Micron is up roughly 190 percent. The swings have been even more dramatic in South Korea, where the Kospi index is heavily weighted toward two tech giants, Samsung Electronics and SK Hynix. On Monday, the Kospi fell 5.1 percent, a sharp reversal from Friday's 17.9 percent surge—the best day in the index's history. In Japan, the Nikkei 225 fell 0.9 percent after the United States and Japan jointly intervened to strengthen the yen against the dollar, a move intended to help contain inflation in Japan but one that could potentially weigh on Japanese exporters. By day's end, the S&P 500 had closed at 7,600.50, the Dow at 53,178.41, and the Nasdaq at 25,913.90. The market had moved closer to its peak, but the path forward remains uncertain.