Oil Prices Continue to Fall: 8 Key Items Shaping the Stock Market Monday
Coke and the IRS, Google flexes its balance sheet, and other headlines are moving stocks this morning.
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These are the early headlines and other items poised to influence the market at the start of trading Monday. As we share this collection of market drivers, U.S. equity futures point to a mixed market open later.
1. U.S. and Iranian officials made “encouraging progress” at a first round of talks in Switzerland that ended early on Monday, mediators said, although tension persisted over Lebanon and the Strait of Hormuz. Mediators Pakistan and Qatar said the parties had agreed to a roadmap towards a final deal on ending their war in 60 days, despite a tense start as Tehran again shut the strait and U.S. President Donald Trump threatened to resume attacks on Iran. (Reuters)
Tensions flared over the weekend, with Tehran closing the Strait of Hormuz, but the above progress keeps us hopeful for an eventual agreement. Could there be bumps along the way? Quite possible is our thinking, but with the mid-term elections looming and consumers under pressure, we suspect a positive resolution is more likely than not.
2. Oil prices fell early Monday, reversing earlier gains, as mediators stepped in to ease tensions between the U.S. and Iran over the weekend… Energy Secretary Chris Wright told ABC News’ This Week that oil and gas prices “will continue to head down.” He said that the U.S. has been escorting ships through a southern route through the strait, and that flows of oil and natural gas through the Strait of Hormuz “have already returned to normal and they will continue that way.” (Barron’s)
This continues the downtrend in oil prices that began roughly a month ago, which is already translating into lower gas and jet fuel prices. There will be more of that to come, but the move lower over the last month has us very interested in the inflation color and commentary coming in tomorrow’s Flash June PMI report.
3. Congress is expected to send a landmark, bipartisan housing affordability bill to President Donald Trump’s desk by the end of next week as the Senate and House schedule action on the legislation in the coming days… The housing affordability legislation, which the White House supports, contains a provision limiting the role of large institutional investors in the single-family housing market, which was a key condition for Trump to sign the bill. (Politico)
Following the May Housing Starts report, we flagged housing affordability as a major headwind for the housing market, particularly the single-family housing market. We could see homebuilding and building material stocks gain some on the passage of this affordability bill, but before we jump into that group, we will want to understand the particulars to determine if it will kickstart a tailwind that we can get behind or if it’s simply more form than substance.
4. Google is making an ambitious play for a bigger slice of the 21st century’s most important market: the chips that power artificial intelligence. Its financial might and years of technical development put it in prime position to succeed… In corralling customers for its chips—known as tensor processing units, or TPUs—Google has mimicked Nvidia’s practice of using financial guarantees to help data centers raise cheaper debt and providing so-called circular financing, in which some of the money it invests flows back in the form of chip purchases. (WSJ)
Google (GOOGL), in using its balance sheet to win chip business, is borrowing a business tactic we’ve seen in other industries, and as the AI/data center race heats up further, we suspect Google and Nvidia (NVDA) won’t be the only two companies using this strategy. The positive for the Pro Portfolio is that Google’s move supports the demand profile for our position in both Marvell (MRVL) and Broadcom (AVGO).
5. Companies including Nestle and Ikea on Monday urged governments to make electrification central to their economic strategies, to help reduce exposure to volatile fossil fuel costs and bolster energy security. The intervention comes at the start of London Climate Action Week, with more than 75,000 people expected to attend 1,000-plus events, including leading policymakers, investors and company executives. It also aligns with a push by Turkey, the hosts of the COP31 climate talks in November, for countries to agree a global target for electricity to supply 35% of the world’s energy demand by 2035. (Reuters)
While folks may quibble over the generation source for electricity, the above puts another spotlight on the need to upgrade the electric grid, not only in the U.S. but across the globe. To us, that is something between a very nice data point and a tailwind for the Portfolio’s position in Eaton (ETN).
6. Coca-Cola is waging a high-stakes corporate battle with more than $20 billion at stake, and the opponent isn’t Pepsi or even Dr Pepper. It’s the Internal Revenue Service… A Coca-Cola win would remove a potential liability that has been hanging over the company for a decade and give comfort to multinationals facing similar audits… If Coke loses, however, it faces a bill for back taxes and interest that’s larger than the company’s net income from 2025—plus a higher tax rate going forward. (WSJ)
While we have no position in Coca-Cola (KO), the outcome of this battle with the IRS could have implications for multi-national companies, especially tech and pharma companies, their tax rates, and therefore their expected level of EPS generation.
7. Economic data today per TipRanks: No major economic data points are being released today, but following last week’s Fed policy meeting, investors will be eyeing what Fed Governor Christopher Walker has to say today.
8. Companies reporting today per TipRanks: No quarterly earnings reports are slated for today.
At the time of publication, TheStreet Pro Portfolio was long AVGO, ETN, GOOGL, MRVL and NVDA.
