US equities rebound as oil prices tumble and tech rout pauses

US equities advanced on Wednesday, with the Nasdaq Composite and S&P 500 rising approximately 0.4% following a steep decline in technology stocks on Tuesday. The recovery coincided with oil prices falling to their lowest levels since the onset of the US-Iran war, as Brent crude dropped below $75 a barrel following the signing of a memorandum of understanding between the US and Iran. The Dow Jones Industrial Average also gained 0.4%. Market sentiment was influenced by the potential reopening of the Strait of Hormuz, though uncertainty remains regarding transit fees.

In corporate developments, Alphabet is set to replace Verizon in the Dow Jones Industrial Average on June 29. The S&P Dow Jones Indices stated that the move aims to broaden exposure to artificial intelligence, cloud computing, and digital advertising, citing Alphabet’s larger market capitalization and share price compared to Verizon. This adjustment reflects a broader shift in how the index represents the US economy, moving away from telecommunications towards technology and services.

JPMorgan raised its year-end S&P 500 price target to 7,800 from 7,600, citing resilient earnings growth driven by the artificial intelligence sector. Dubravko Lakos-Bujas, JPMorgan’s global head of market strategy, noted that consensus earnings growth has been revised higher to around 20% on average for the next two years. He described the current market environment as approaching a “Blue Sky” scenario, supported by the slowdown in the Iran conflict and the continued strength of the AI trade.

The rebound in equities came as investors digested the implications of the US-Iran memorandum of understanding. Brent crude futures fell 4% to $73 a barrel, while West Texas Intermediate crude dropped to $70 a barrel. The drop in oil prices followed the signing of the agreement, which calls for the reopening of the Strait of Hormuz. However, uncertainty persists regarding transit fees, with Iran and Oman discussing a system to charge ships for transiting the waterway, despite pledges from US and Iranian leaders for free passage.

Market volatility remained high as investors assessed the sustainability of the AI boom. The “Magnificent Seven” plus Broadcom and Oracle have lost roughly $2.7 trillion in market value in June as investors scrutinise the costs of the AI build-out. Attention now turns to Micron’s earnings report due after the bell, which will serve as a key bellwether for demand in the memory chip sector. Meanwhile, Treasury Secretary Scott Bessent indicated that inflation is expected to come down as gas prices fall, urging patience as negotiations with Iran play out.