US equities mixed as Iran diplomacy lowers oil and bond yields
Crude prices drop 3% on interim US-Iran deal optimism, easing inflation expectations, while ECB signals likely June rate hike.
US equity markets closed with a mixed performance on Wednesday, driven by diverging sector reactions to geopolitical developments and economic data. The Dow Jones Industrial Average rose 0.54% to a new record high, while the S&P 500 fell 0.07% and the Nasdaq 100 declined 0.44%. June E-mini S&P futures were down 0.07%, and June E-mini Nasdaq futures fell 0.47%. The weakness in energy producers and cybersecurity stocks acted as a drag on the broader market, despite enthusiasm for artificial intelligence and lower oil prices.
Crude oil prices dropped more than 3% to a five-week low following reports of an impending interim agreement between the United States and Iran. US Secretary of State Rubio stated that an interim agreement is "only a couple of days away," following reports from Iranian state television of an unofficial draft memorandum. The draft reportedly outlines the lifting of the US naval blockade of Iran in exchange for restored commercial transit shipping through the Strait of Hormuz.
The decline in crude prices has reduced inflation expectations and lowered bond yields, with the 10-year US Treasury yield falling to a 1.5-week low of approximately 4.45%. This shift has benefited sectors such as airlines and cruise lines. United Airlines Holdings and Norwegian Cruise Line Holdings rose more than 6%, while Delta Air Lines, Alaska Air Group, Carnival, and Royal Caribbean Cruises Ltd all gained more than 4%. Conversely, energy producers fell, with Baker Hughes down more than 5% and Halliburton and SLB Ltd down more than 3%.
In the corporate sector, Zscaler fell more than 30% after forecasting revenue below consensus, leading cybersecurity stocks lower. Verra Mobility dropped more than 72% after Avis Budget terminated its contract. On the positive side, Dycom Industries rose more than 29% on strong Q1 results, and Bath & Body Works increased more than 12% after reporting better-than-expected net sales.
Economic data presented a mixed picture. The US Richmond Fed manufacturing survey for May rose to 13, a 4.5-year high, beating expectations of 4. However, US MBA mortgage applications fell 8.5% in the week ended May 22, with the refinancing sub-index down 18.1%. In Europe, ECB Governing Council member Yannis Stournaras indicated that an interest rate hike in June is the "likeliest outcome," citing prolonged energy price pressures. German economic advisers cut their 2026 GDP forecast to 0.5% from 0.9%.
The International Energy Agency reported that global oil inventories declined by approximately 4 million barrels per day in March and April, warning the market will remain "severely undersupplied" until October. Goldman Sachs estimates that current disruptions have drawn down nearly 500 million barrels from global crude stockpiles, with potential drawdowns reaching 1 billion barrels by June.
