US stocks open 1% lower as Oil surges 9%

Of course, it could have been much worse.

US stock indices opened about 1% lower across the board on Monday as Oil surged overnight, rising over 9% from last Friday’s close as the Strait of Hormuz remains closed.

In the first half hour of Monday’s regular session, the Dow Jones Industrial Average (DJIA), NASDAQ Composite and S&P 500 all sold off between 1.3% and 1.6%.

News from the 10-day conflict between the US, Israel and Iran led the way lower as Saudi Arabia said it would cut production at two of its oil fields. However, the kingdom said it had tendered about 4 million barrels worth of crude through its pipeline on the Red Sea.

Overnight, crude Oil futures surged to a high of $119.48, the highest price since June 2022, amid a global spike in Oil prices caused by Russia’s invasion of Ukraine. But the futures price fell below $100/barrel when The Financial Times reported that G7 finance ministers were considering a major release of Oil across multiple national reserves. Russia has already received a reprieve from Ukraine-related sanctions in order to sell Oil into the global market.

Stock market news

Despite the broadly lower indices, Hims & Hers Health (HIMS) stock spiked about 40% on news of a legal deal between it and Novo Nordisk (NVO). The US-based telehealth company will offer Novo’s GLP-1 weight loss drugs and stop marketing its compounded GLP-1 offerings, and Novo will drop its lawsuit.

Consumer discretionary stocks were the worst on Monday (-2.5%), while Energy is the only sector that is rising in the market (up 0.2%).

The higher Oil price could lead global inflation to rise two percentage points, according to TS Lombard strategist Dario Perkins. Based on that higher inflation outlook, Perkins says central banks around the world are unlikely to introduce new interest rate cuts.

“Inflation is already overshooting their targets, and—in their minds—that makes expectations ‘more fragile,” Perkins wrote in a research note.

Oil and stock charts

Oil has been hit hard. While the intraday slide is now well below the $119.48 high seen overnight, a prolonged war could mean Iran keeps the Strait of Hormuz closed for months. The Strait is a transit point for about one-fifth of the global oil supply. Bulls will focus on overcoming the decade’s high of $130.50 from March 2022. Before that, the all-time high of $147.27 comes from July 2008, nearly 18 years ago.

On a year-to-date basis, the NASDAQ Composite is now underperforming the S&P 500 and Dow Jones indices. While all three indices were consolidating up until now, the war with Iran has pushed them into short-term downtrends as investors flee to safer havens.