Wall Street Slips, Oil Surges on Fading Strait of Hormuz Deal Hopes

The Nasdaq and S&P 500 closed lower on Monday, with Intel and other chipmakers leading declines, as fading expectations for a deal to reopen the Strait of Hormuz pushed U.S. crude oil up about 5% and dented investor sentiment.

The S&P 500 fell 4.74 points, or 0.06%, to 7,753.12, while the Nasdaq Composite dropped 84.89 points, or 0.32%, to 26,605.36. The Dow Jones Industrial Average declined 71.77 points, or 0.13%, to 53,965.16. The moves came after the S&P 500 posted a record-high close on Friday, supported by stronger-than-expected earnings.

U.S. crude oil jumped about 5% to settle at $82.13 a barrel, according to multiple reports. September West Texas Intermediate crude closed up $3.95, or 5.05%, and September RBOB gasoline rose 5.03%, climbing to a one-week high, as reported by Nasdaq.com.

The rally in energy prices followed a breakdown in talks between Iran and Oman over reopening the Strait of Hormuz, a vital chokepoint for global oil supplies. President Donald Trump demanded that Iran pay compensation for people he said it had killed in wars, attacks and protests. Earlier, Iran called on Washington to meet conditions including recompensing Tehran for damage from U.S. and Israeli strikes on its territory more than five months ago. "President Trump spoke out against Iran’s demand for compensation from the war, dimming hopes of a quick deal," according to Nasdaq.com.

The absence of an agreement is tightening crude supplies. Traffic through the Strait of Hormuz remains slow. Energy Aspects said on Monday that only an average of five vessels are transiting through the strait, far below the 14 ships a day seen after the U.S. and Iran reached a memorandum of understanding in June, Nasdaq.com reported. Additional strains came from an attack on Saudi Arabia’s Jazan refinery by Houthi militants over the weekend, further threatening global fuel supplies.

Reopening the flow of oil through the Strait could mitigate concerns over heightened energy prices that have spurred inflation worries and led to concerns that central banks would have to raise interest rates.

Also weighing on the market were shares of Intel, which fell 4.1% after the chipmaker said it was planning to raise $15 billion through a share sale. Nvidia dropped 2.9%. According to a person familiar with the matter who spoke to Reuters on Monday, a group of financial firms including Apollo Global and Blackstone is working with Nvidia to put together a $500 billion funding package for AI infrastructure development.

Broader market sentiment reflected the tug-of-war between solid earnings and geopolitical uncertainty. "It's record margins and record earnings. That's just been the story of this market, and yet the overlay of the Iran conflict just pulls risk sentiment on and then pulls it off," said Tom Hainlin, an investment strategist at U.S. Bank Wealth Management in Minneapolis, in remarks carried by multiple outlets. "The direct impact is just the energy sector and ... oil prices, and they're just sticky here above where they were on Feb 27 before the conflict. So there's clearly no transparency of the path to get back to where we were before the conflict started, and so that premium's just being built in. So far, the world's been able to work around it, but those workarounds don't last forever."

On the data front, a report on Friday showed U.S. employers unexpectedly shed 23,000 jobs in July, prompting traders to cut the odds of a Federal Reserve interest-rate hike in September. Traders now price in a 52% chance of a rate hike in September, according to the CME FedWatch tool. Reports later this week could offer further clues on the Fed’s monetary policy path.

Corporate earnings continue to beat expectations. About 85% of the 436 companies in the S&P 500 that have reported earnings so far this period have beaten estimates, according to LSEG data. More quarterly results are due this week, including reports from semiconductor company Applied Materials and networking equipment maker Cisco.

Declining issues outnumbered advancers by a 1.39-to-1 ratio on the New York Stock Exchange, and by 1.47-to-1 on the Nasdaq. The S&P 500 posted 20 new 52-week highs and one new low, while the Nasdaq recorded 107 new highs and 74 new lows.