Escalating tensions in the Middle East triggered a significant surge in international oil prices on Monday, while a continued sell-off in artificial intelligence (AI)-related semiconductor stocks dragged down major equity markets in the United States and Asia. Concerns are mounting that geopolitical risks will drive up energy costs, potentially exacerbating inflationary pressures and further impacting the global economic outlook and corporate earnings.
The international benchmark Brent crude futures price jumped 9.6% to $83.30 per barrel. The sharp increase followed statements from both the United States and Iran asserting control over the Strait of Hormuz, intensifying tensions around this critical global energy shipping lane. Concurrently, the US President announced the reinstatement of a maritime blockade against Iran and a 20% "compensation fee" on all cargo transiting the Strait of Hormuz, citing costs incurred by the US to secure the waterway. This news propelled oil prices even higher. However, the current Brent price remains notably below the near $120 per barrel peak seen during previous Middle East conflicts.
Weighed down by rising oil prices and a pullback in the AI sector, the three major US stock indices all closed lower. The S&P 500 index fell 0.79%, halting its recent winning streak. Semiconductor stocks were a primary drag on the market. Micron Technology Inc (MU.US) declined 4.32%, giving back some of its year-to-date gains. Despite a rally exceeding 240% this year fueled by AI enthusiasm, market participants are beginning to question the sustainability of current AI-related demand and profit growth. Leading AI chipmaker NVIDIA Corp (NVDA.US) fell 3.52%. As the highest-valued publicly traded company in the US, NVIDIA was one of the most significant individual contributors to the S&P 500's decline.
Asian markets also faced pressure. South Korea's KOSPI index plunged 8.9%, with memory chip giant SK Hynix Inc's shares plummeting 15.4%, marking its largest single-day drop since its 1997 listing. Notably, SK Hynix Inc (SKHY.US) had just completed a $26.5 billion American Depositary Receipt offering and began trading on the Nasdaq last Friday, surging 13.1% on its debut, only to fall 9.3% in US trading on Monday.
In contrast, some companies within the AI supply chain showed relative resilience. Taiwan Semiconductor Manufacturing Company Ltd (TSM.US) reported a nearly 68% year-over-year increase in June revenue, driving a 35.6% rise in cumulative revenue for the first half of the year. Buoyed by the strong results, its shares in Taiwan rose 1%, although its US-listed shares (TSM.US) still declined 2.9%.
Market focus this week shifts to the US corporate earnings season. Starting Tuesday, major financial institutions including Bank of America Corp (BAC.US), Citigroup Inc (C.US), JPMorgan Chase & Co (JPM.US), Goldman Sachs Group Inc (GS.US), and Wells Fargo & Co (WFC.US) are scheduled to release their latest quarterly results. According to FactSet data, analysts forecast that S&P 500 index companies will post a collective 23.6% year-over-year earnings growth for the second quarter. If realized, this would mark a second consecutive quarter of profit growth exceeding 20%. The prevailing market view is that with equity valuations at historically high levels and AI-related stocks experiencing increased volatility, robust corporate earnings reports will be crucial for sustaining further market gains.
In bond markets, rising oil prices stoked inflation concerns, pushing US Treasury yields higher. The yield on the 10-year Treasury note climbed to 4.61%, up from 4.56% at Friday's close and significantly above the approximately 3.97% level seen before the Iran conflict escalated. Higher energy prices could prompt the Federal Reserve and other major central banks to maintain a tight monetary policy stance or even implement further interest rate hikes to combat inflation. However, higher rates could also dampen economic growth and exert downward pressure on valuations for risk assets like stocks and bonds.
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