Wednesday, May 6

Renewed U.S.-Iran clashes in the Strait of Hormuz propelled WTI crude to $105 per barrel, up 3% in a single session, triggering a broad equity pullback as traders priced in prolonged energy disruptions against recent optimism from solid Q1 earnings. The Dow plunged over 1%, while tech resilience limited S&P 500 and Nasdaq declines to milder losses, underscoring large-cap outperformance and a value-over-growth rotation fueled by energy's surge—contrary to consensus bets on AI-driven gains persisting amid hawkish Fed signals.

This oil shock overshadowed robust April earnings from Alphabet and Meta, where AI demand boosted results but Meta's capex hike drew a 8.7% share drop, amplifying growth wariness as higher commodity costs threaten margins despite Q1 GDP at 2.0% annualized, below 2.3% expected. Yields ticked higher with Japan's 10-year JGB at 2.50% after BoJ lifted 2026 inflation to 2.8% amid Middle East supply risks, signaling potential hikes that cross-pressured USD against safe-haven flows; gold held firm while broader FX saw USD strength on Fed dissenters pushing back easing. Commodities decoupled from equities, with oil's jump defying de-escalation hopes.

Positioning unwound as desks slashed energy disruption odds post-ceasefire, but today's flare-up validated prior hedges, hitting cyclicals hardest while tech's earnings buffer exposed sector divergence. Friday's nonfarm payrolls, forecast at +60k jobs holding unemployment at 4.3%, will test labor resilience to oil's pass-through inflation, potentially validating Fed hold if prints surprise higher and force reassessment of year-end cut odds.