US markets overcame initial volatility on Thursday, May 21, to end higher amidst contradictory reports of a possible deal between the US and Iran to end hostilities in West Asia and commence maritime traffic through the Strait of Hormuz. According to reports from CNBC TV18, the Dow Jones reversed early losses to end 276 points higher, reaching a record closing high. The S&P 500 and Nasdaq, which were down between 0.5% to 1% earlier in the day, also reversed all their losses to end just above the flat line. As per Investing.com, the Dow Jones Industrial Average added 0.3% to conclude at 50,285.66 points, notching its first record close since early February. The benchmark S&P 500 index climbed 0.2% to close at 7,446.05 points, while the tech-heavy Nasdaq Composite advanced 0.1% to settle at 26,293.10 points. According to Bloomberg, the Dow Jones Industrial Average rose 0.6% as hopes for a diplomatic resolution lifted stocks, with the S&P 500 extending this week's advance by 0.2%. Latest market data shows the Nasdaq Composite at 26,293.10 points, up 0.09%, while the Russell 2000 gained 0.93% and Consumer Discretionary sector rose 0.77%.
Oil prices experienced significant volatility throughout the trading session due to uncertainty about how long the war with Iran will keep the Strait of Hormuz shut. As reported by Business Standard, oil prices are yo-yoing because of uncertainty about how long the war with Iran will keep the Strait of Hormuz shut. The closure has prevented oil tankers from exiting the Persian Gulf to deliver crude to customers worldwide, driving up oil prices. Stocks of companies with big fuel bills also rose because of the easing of oil prices, with Southwest Airlines gaining 2.7% and American Airlines flying 4.9% higher. However, Nvidia, one of Wall Street's most influential stocks, dropped 1.8% despite reporting stronger profit and revenue for the latest quarter than analysts expected, while also forecasting revenue for the current quarter that cleared analysts estimates.
Market sentiment has shifted dramatically as investor demand for downside protection has collapsed to near-historic lows. According to The Kobeissi Letter, the average three-month single-stock put-call skew across S&P 500 single stocks has plunged 75% since March to 0.04, marking the fourth-lowest reading in 20 years. This represents the sharpest plunge since the April-to-May 2025 period, with the gauge falling from roughly 0.15 in March to the current 0.04 level. The S&P 500 put-call skew reached nearly 0.50, near three-year highs in March, but has now compressed dramatically. As The Kobeissi Letter explained, "Investors are no longer thinking about downside risk" as the market signals confidence over caution. This shift comes alongside the S&P 500's 16% appreciation since March 31, with the index printing a fresh all-time high in May.
The current market rally is being driven by exceptional earnings performance, with the strongest earnings season since 2021 contributing significantly to investor optimism. As reported by Apollon Wealth Management CIO Eric Sterner, earnings are up about 27-28% during this period, with net profit margins near 15%, which is actually the highest since Facset started tracking that in 2009. According to Bloomberg, the Dow Jones Industrial Average rose 0.6% as hopes for a diplomatic resolution lifted stocks, with the S&P 500 extending this week's advance by 0.2%. The AI movement is also creating powerful tailwinds across multiple sectors, helping to offset some of the concerns about the Middle East conflict. However, as noted by Apollon Wealth Management, the big elephant in the room is the conflict in the Middle East, with investors paying attention to updates on peace negotiations and betting that the conflict will be short-lived.
Walmart, the world's largest retailer, announced first quarter results that beat street expectations but disappointed with full-year guidance. According to CNBC TV18, the company expects full-year Earnings Per Share (EPS) to be between $2.75 to $2.85, lower than estimates of $2.91, while full year sales growth could be between 3.5% to 4.5%. The stock fell 7.3% on Thursday, keeping the Dow's gains in check despite the company's strong quarterly performance. As per Investing.com, Walmart finance chief John David Rainey explained that the company absorbed approximately $175 million, or about 250 basis points of operating income growth, from higher-than-planned fuel costs in its global distribution and fulfillment operations. Rainey added that if the current elevated cost environment persists, the company would expect somewhat higher retail price inflation in Q2 and the second half of the year. According to Bloomberg, Walmart warned rising fuel costs are squeezing its bottom line and could lead to higher prices for shoppers, highlighting how the war is impacting companies directly. As reported by Business Standard, Walmart has resonated with Americans who have grown increasingly cautious about where they spend their money with inflation taking a bigger bite out of paychecks.
