Monday, May 11

U.S. equity markets closed lower Thursday amid renewed U.S.-Iran military tensions in the Persian Gulf, reversing a prior rally fueled by peace hopes and prompting desks to unwind risk positions built on expected Strait of Hormuz stability. The S&P 500 fell 0.8% to 5,620, Nasdaq dropped 1.2% to 18,450 as tech lagged after AI-driven gains, while energy and materials led declines on oil's snapback. This pullback caught shorts offside, with positioning data showing hedge funds net long equities at 2025 highs entering the session.

The 10-year Treasury yield climbed 8bps to 4.38% as rebounding oil stoked inflation fears, undercutting bonds despite solid economic prints like jobless claims at 200,000 versus 205,000 expected. WTI crude surged 5% to $102/bbl after Iran's rebuff of U.S. peace terms demanding nuclear concessions and Hormuz control, erasing a 7% drop to $95 on prior diplomacy optimism and highlighting energy supply risks traders had discounted. The USD gained 0.4% on the DXY to 106.2, pressuring EUR to $1.08, while gold held $2,650/oz as safe-haven bids offset yield pressure. Japan's Nikkei hit a record Thursday up 5.4% on AI semis before holiday closure, outpacing U.S. downside.

Corporate earnings provided counterweight, with 85% of S&P 500 reporters beating estimates by 19% on average, lifting 2026 EPS forecasts to 28% and broadening gains beyond tech to 10 of 11 sectors. April payrolls surprised at 115,000 added jobs versus 62,000 forecast, with March revised to 185,000, signaling labor resilience against consensus reacceleration fears.

Friday's nonfarm payrolls preview and ISM services PMI matter as they test if labor strength forces Fed rethink on cuts amid oil volatility; a beat could spike yields and cap equity rebound.