The S&P 500 Index ($SPX) (SPY) on Wednesday closed up +1.08%, the Dow Jones Industrial Average ($DOWI) (DIA) closed up +1.31%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.66%. June E-mini S&P futures (ESM26) rose +0.96%, and June E-mini Nasdaq futures (NQM26) rose +1.57%.
Stock indexes finished sharply higher on Wednesday, recovering most of this week’s losses, amid a plunge in crude oil prices and lower bond yields. Crude oil prices sank by more than 5% on hopes for a deal to end the Iran war, knocking inflation expectations and bond yields lower. The 10-year T-note yield fell -10 bp to 4.57%, falling back sharply from Tuesday’s 16-month high.
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Semiconductor stocks also rallied on Wednesday, providing support to the broader market. Nvidia rose more than +1% ahead of its earnings results after Wednesday’s close. Nvidia’s earnings will provide an update on the state of the AI economy, with Q1 sales expected to be up 80%, but the markets will be focused on what the company has to say about ramping up production and fending off competitors.
The minutes of the April 28-29 FOMC meeting were hawkish as “many” policymakers called for the Fed to drop its easing bias and signal its next move could be an interest rate increase. Also, most of the meeting’s participants said that “some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%.”
US MBA mortgage applications fell -2.3% in the week ended May 1, with the purchase mortgage sub-index down -4.1%, and the refinancing mortgage sub-index down -0.1%. The average 30-year fixed rate mortgage rose +10 bp to 6.56% from 6.46% in the prior week.
WTI crude oil prices (CLM26) remain extremely volatile and are susceptible to headlines from the Iran war. Prices plummeted by more than -5% on Wednesday after President Trump said the US is in the “final stages” with Iran, bolstering speculation that crude supplies will soon start flowing out of the Strait of Hormuz. Late Monday, President Trump said he called off a strike on Iran scheduled for Tuesday after Gulf allies asked for more time to give diplomacy a chance.
Last Wednesday, the International Energy Agency (IEA) said in a monthly report that global oil inventories declined at a rate of about 4 million bpd in March and April, and the market will remain “severely undersupplied” until October even if the conflict ends next month. Goldman Sachs estimates that the current disruption has drawn down nearly 500 million bbl from global crude stockpiles, with the drawdown potentially reaching 1 billion bbl by June.
The markets are discounting a 7% chance of a -25 bp FOMC rate cut at the next FOMC meeting on June 16-17.
Earnings season is winding down, and reports thus far have been supportive of stocks. As of Wednesday, 83% of the 463 S&P 500 companies that reported Q1 earnings have beaten estimates. Q1 S&P 500 earnings are projected to climb +12% y/y, according to Bloomberg Intelligence. Stripping out the technology sector, Q1 earnings are projected to increase around +3%, the weakest in two years.
Overseas stock markets settled mixed on Wednesday. The Euro Stoxx 50 rallied to a 1.5-week high and closed up sharply by +2.13%. China’s Shanghai Composite closed down -0.18%. Japan’s Nikkei Stock Average fell to a 2.5-week low and closed down -1.23%.
Interest Rates
June 10-year T-notes (ZNM6) on Wednesday closed up +22.5 ticks. The 10-year T-note yield fell -9.8 bp to 4.568%. T-note prices rallied sharply on Wednesday, recovering most of this week’s sell-off, as a -5% plunge in WTI crude oil prices weakened inflation expectations, a supportive factor for T-notes. The 10-year breakeven inflation rate fell to a 1.5-week low of 2.443% on Wednesday. T-notes also had some carryover support from a rally in 10-year UK gilts after UK April consumer prices rose less than expected.
The strength in stocks on Wednesday limited gains in T-notes, as did the hawkish minutes of the April 18-29 FOMC meeting. Also, slack demand for the Treasury’s $16 billion auction of 20-year T-bonds was negative for T-note prices, as the auction had a bid-to-cover ratio of 2.55, below the 10-auction average of 2.65.
European government bond yields moved lower on Wednesday. The 10-year German Bund yield fell -9.7 bp to 3.096%. The 10-year UK gilt yield fell -14.1 bp to 4.988%.
UK Apr CPI eased to 2.8% y/y from 3.3% y/y in Mar, weaker than expectations of 3.0% y/y. Apr core CPI eased to 2.5% y/y from 3.1% y/y in Mar, weaker than expectations of 2.6% y/y.
ECB Governing Council member Pierre Wunsch said, “If the Iran conflict isn’t resolved by June, then I think the likelihood of an ECB rate hike is quite high.”
Swaps are discounting an 82% chance of a +25 bp ECB rate hike at its next policy meeting on June 11.
US Stock Movers
Chipmakers and AI infrastructure stocks rallied on Wednesday, providing support to the overall market. ARM Holdings Plc (ARM) closed up more than +15% to lead gainers in the Nasdaq 100, and Advanced Micro Devices (AMD) and Intel (INTC) closed up more than +7%. Also, Lam Research (LRCX) and ASML Holding NV (ASML) closed up more than +6%, and KLA Corp (KLAC), Marvell Technology (MRVL), and NXP Semiconductors NV (NXPI) closed up more than +5%. In addition, Applied Materials (AMAT) closed up more than +4%, and Qualcomm (QCOM) closed up more than +3%.
Airline stocks and cruise line operators moved sharply higher on Wednesday as WTI crude oil prices sank by more than 5%, lowering fuel costs and boosting profitability prospects. Alaska Air Group (ALK) closed up more than +10%, and United Airlines Holdings (UAL) closed up more than +9% to lead gainers in the S&P 500. Also, Delta Air Lines (DAL) closed up more than +9%, and Carnival (CCL) and Norwegian Cruise Line Holdings (NCLH) closed up more than +8%. In addition, American Airlines Group (AAL) closed up more than +7%, and Southwest Airlines (LUV) closed up more than +6%.
Toll Brothers (TOL) closed up more than +9% on Wednesday to lead homebuilders and building suppliers higher after reporting Q2 revenue of $2.53 billion, above the consensus of $2.43 billion. Also, Builders Firstsource (BLDR) closed up more than +7%, and DR Horton (DHI) and Lennar (LEN) closed up more th a+5%. Also, Pulte Group (PHM) and KB Home (KBH) closed up more than +4%.
Energy producers and service providers fell on Wednesday as WTI crude prices tumbled by more than -5%. APA Corp (APA), Exxon Mobil (XOM), Occidental Petroleum (OXY), and Valero Energy (VLO) closed down more than -3%. Also, Chevron (CVX) closed down -3% to lead losers in the Dow Jones Industrials, and ConocoPhillips (COP) and Devon Energy (DVN) closed down more than -2%.
TJX Cos (TJX) closed up more than +5% after reporting Q1 net sales of $14.32 billion, better than the consensus of $14.01 billion.
Etsy (ETSY) closed up more than +5% after Arete upgraded the stock to buy from neutral with a price target of $76.
Packaging Corp of America (PKG) closed up more than +4% after UBS upgraded the stock to buy from neutral with a price target of $248.
Cava Group (CAVA) closed up more than +3% after reporting that Q1 comparable restaurant sales rose +9.70%, stronger than the consensus of +5.97%.
Hasbro (HAS) closed down more than -8% to lead losers in the S&P 500 after forecasting full-year adjusted Ebitda of $1.40 billion to $1.45 billion, the midpoint below the consensus of $1.44 billion.
Intuit (INTU) closed down more than -3% to lead losers in the Nasdaq 100 after announcing it is cutting 17% or its workforce, or about 3,000 employees worldwide.
Target (TGT) closed down more than -3%, despite reporting better-than-expected Q1 sales after executives warned in a conference call that Q2 comparisons are the “hardest” of the year.
Analog Devices (ADI) closed down more than -3% after reporting Q2 industrial revenue of $1.80 billion, below the consensus of $1.81 billion.
Cigna Group (CI) closed down more than -2% after Deutsche Bank downgraded the stock to hold from buy.
Earnings Reports(5/21/2026)
Advanced Drainage Systems Inc (WMS), Copart Inc (CPRT), Deckers Outdoor Corp (DECK), Deere & Co (DE), Flowers Foods Inc (FLO), Hamilton Lane Inc (HLNE), Ralph Lauren Corp (RL), Ross Stores Inc (ROST), Take-Two Interactive Software (TTWO), Walmart Inc (WMT), Williams-Sonoma Inc (WSM), Workday Inc (WDAY), Zoom Communications Inc (ZM).
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