Global markets experienced a historic surge on Tuesday, with the S&P 500 and Nasdaq closing at all-time highs, led by a historic surge in semiconductor stocks. According to Prime Research, Micron Technology jumped 19% on AI optimism, pushing its market capitalisation past $1 trillion. The Nasdaq 100 also hit a record, while the Dow Jones edged down roughly 0.2%. NVIDIA reported blockbuster quarterly earnings, with CEO Jensen Huang projecting the company could capture $35 billion for every $50 billion in AI infrastructure spending. Despite strong results, shares traded at $214.87 below the 52-week high of $236.54, with Bank of America noting the stock sits at just 17.5x 2027 earnings, well below its five-year average.
According to Bank of America's global fund manager survey covering more than 200 institutions managing over $500 billion in assets, 54% of respondents expect the Strait of Hormuz to be fully open by the end of June. As reported by CNBC TV18, investors are effectively looking through the geopolitical risks surrounding Iran and believe oil prices will probably decline and end the year around $85. This optimism comes despite the current stagflation shock from the Iran situation, which has created a different outlook on interest rates compared with earlier expectations. U.S. Treasury yields retreated following the Memorial Day holiday as investors reacted to potential progress in negotiations to end the war with Iran, with the 10-year Treasury yield dropping more than 8 basis points to settle at 4.489%.
India has emerged as one of the near-term losers from the Iran conflict due to its dependence on imported energy, according to Bank of America's Head of Global Research, Candace Browning. As reported by CNBC TV18, India has been particularly hurt by its energy problem, which will hurt some emerging and frontier markets. However, India still has strong structural advantages behind it, and the losers of recent months could become winners by the end of the year. Browning emphasized that India has a lot going for it in terms of demographics, with positive policy changes and continued deregulation being very beneficial.
Oil prices showed mixed movement as investors weighed U.S. strikes on Iranian vessels against positive rhetoric regarding potential peace negotiations. According to Prime Research, these geopolitical developments remain central to market sentiment as they directly impact global inflation pressures. The Indian rupee snapped its three-day winning streak, with a sharp 45-paise depreciation, buckling under heavy pressure driven by a weakening of the Asian currency basket, a shift toward global risk aversion, and a spike in crude oil prices following US military strikes. From Nifty, the earlier breakout zone of 23,800–23,850 is expected to act as immediate support, followed by 23,600, while 24,100 remains a key near-term resistance level.
The Iran situation has created a stagflation shock, leading to a different outlook on interest rates compared with earlier expectations. According to Bank of America's analysis, there is more of a tilt towards tightening monetary conditions rather than the looser conditions that existed earlier. While the firm is concerned about slower growth and higher inflation, it does not think there will be Fed hikes this year, though it expects around 50 basis points of hikes in Europe. As reported by CNBC TV18, it is still a little too early to call for rate hikes in the US, despite the current monetary policy environment.
