S&P 500 ends marginally lower as investors focus on US-Iran war

The S&P 500 ended slightly lower on Thursday, with investors closely observing tensions between the United States and Iran. Microsoft experienced a decline, while Meta Platforms experienced a rise, amid concerns over the Middle East and an increase in oil prices. The index recovered from its lows after reports suggested that US and Iranian negotiators were considering a phased approach to resolve the conflict, which would entail Iran reopening the Strait of Hormuz and the United States lifting its economic sanctions on Iran.

US and Iranian leaders had exchanged harsh words at the UN General Assembly this week. Brent crude prices surged over 3% to near $107 per barrel following a Houthi missile strike on Saudi Arabia, reigniting worries about supply disruptions. Analysts believe that oil and inflation, as well as their impact on interest rates, are the primary market catalysts at the moment.

AI-focused companies had mixed performances, with Microsoft down 0.5% and Broadcom falling 1.3%, while Advanced Micro Devices rose 2.4%. Meta Platforms gained 4.5%, following the unveiling of an AI assistant-related handheld device. Oracle saw a 3.5% decrease after announcing the sending of a force majeure notice to a data center in New Mexico.

Treasury yields surged, with the 30-year Treasury bond yield reaching its highest level since 2004, making safe-haven Treasuries more appealing to investors than stocks with uncertain returns. The S&P 500 closed at 7,704.13 points, while the Nasdaq increased slightly to 26,939.37 points, and the Dow Jones Industrial Average dropped 0.31% to 51,349.98 points.

Eight of the eleven S&P 500 sector indexes declined, led by materials, which dropped by 1.18%, followed by a 0.96% decline in consumer staples. The S&P 500 has been trading near 19 times expected earnings this week, its lowest valuation since 2023, based on LSEG data. AI-related heavyweights have contributed to the recent rise in earnings expectations.

US President Donald Trump welcomed Chinese President Xi Jinping to the White House, with a summit expected to focus on symbolism rather than significant outcomes related to AI, trade, Taiwan, and the Middle East conflict. Elevated expectations for the Federal Reserve to raise interest rates again, following a 25-basis-point increase last week, have led traders to price in a nearly 70% chance of a rate hike next month, according to the CME FedWatch Tool.

New York Fed President John Williams, who has a vote on the Federal Open Market Committee, suggested that it was reasonable to expect the US central bank may need to raise rates once more before the year's end. MGM Resorts experienced a significant 11% drop after People Inc., a company owned by media mogul Barry Diller, withdrew its proposal to acquire the casino operator.

Declining stocks outnumbered rising ones in the S&P 500 by a ratio of 1.9 to 1. The S&P 500 achieved 14 new highs and 41 new lows, while the Nasdaq recorded 53 new highs and 238 new lows. The trading volume on US exchanges reached 16.8 billion shares, surpassing the average of 16.7 billion shares over the preceding 20 sessions.