The front-month West Texas Intermediate crude oil futures contract opened near its 52-week high but trended lower and closed down nearly 7% Monday as markets priced U.S. strikes on Iran, the status of the conflict in the Middle East and the implications for the Strait of Hormuz.
Over the weekend, President Donald Trump ordered U.S. military assets to attack from the air and the sea the Islamic Republic's three main nuclear processing and production facilities.
Retaliation by Tehran reported late in the trading session was interpreted by Wall Street as more symbolic than substantive and drove the major equity indexes to intraday highs.
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"There are several important energy chokepoints around the world," writes Robert Rapier, a chemical engineer who covers the energy sector for Forbes, "but none is more significant and vulnerable than the Strait of Hormuz."
Rapier notes that the Iranian Parliament has reportedly voted to close it. "Such a move could severely disrupt the world's energy markets," though Rapier adds that Iran has failed to follow through on previous threats to close the Strait.
Approximately 30% of the global seaborne crude oil trade and about 20% of liquefied natural gas (LNG) transits the strait on the way to key end markets – including China, Japan and India, as well as parts of Europe.
Is there a Strait of Hormuz trade?
So, is there money to be made on a Strait of Hormuz trade? Probably. The real question is whether it fits your long-term strategy. Do you understand the price action, and does it make sense to you?
Consider how a technical analyst I know likes to frame similar questions: You could cook a New York strip steak in the microwave, but should you do it?
"The sudden escalation in the Middle East war since June 13 joins other policy issues that were already orbiting as likely sources of capital market volatility this summer," writes Paul Christopher, head of global strategy at the Wells Fargo Investment Institute.
For investors with a long-term focus, Christopher suggests "adding exposure on down days to high-quality U.S. equity asset classes and sectors and staying selective in fixed income."
For Louis Navellier of Navellier & Associates, "high-quality" translates to defense stocks and aerospace stocks. "President Trump decided to strike Iran. So what do we do?"
Navellier suggests a brief relief rally, "but it's going to be short-lived because there's still so much uncertainty."
Navellier identifies Elbit Systems (ESLT, +0.3%), Palantir Technologies (PLTR, +1.9%), Carpenter Technology (CRS, +3.1%) and Howmet Aerospace (HWM, +1.3%) as names he likes.
"Your best defense," he concludes, "is a strong offense of fundamentally superior stocks."
By the closing bell, the Dow Jones Industrial Average was up 0.9% to 42,581, the S&P 500 had added 1% at 6,025, and the Nasdaq Composite was higher by 0.9% to 19,630.
Dependence and independence
This week's economic calendar is full of exciting events, including Thursday's release of the third and final estimate of first-quarter gross domestic product (GDP) growth and Friday's report on the Fed's most-favored inflation gauge, the Personal Consumption Expenditures Price Index (PCE).
We'll see multiple housing market reports and hear from multiple monetary policymakers. Revised consumer sentiment readings from the University of Michigan will close the week.
Still, Fed Chair Jerome Powell's two-day testimony on Capitol Hill is likely to attract particular interest.
Powell is likely to reiterate that monetary policy depends on incoming data; that we've yet to see the real impact of tariffs on inflation; and that any response to geopolitical events will be framed in the context of the Fed's dual mandate.
There's something bigger at stake.
According to The Wall Street Journal, "President Trump is pressuring the Fed to cut rates with a public barrage that has few precedents in modern history."
As Nick Timiraos writes, "How lawmakers regard the attack on Powell will be a key gauge of support for Fed independence."
Trump would probably like to fire Powell, though such a step isn't necessary to undermine the market's perception of the central bank and its ability to manage the economy.
Chain reaction boosts CEG, CCJ
The Empire State has joined the list of entities exploring how to invest in the nuclear revolution.
In an interview with The Wall Street Journal published Tuesday afternoon, Gov. Kathy Hochul said she has directed the New York Power Authority to add at least 1 gigawatt of new nuclear-fired power generation – about enough to power about a million homes – to its existing fleet.
Constellation Energy (CEG), the largest operator of nuclear power plants in the U.S., was up 3.4% on Monday.
Cameco (CCJ), the largest publicly traded uranium company in the world and the second-largest uranium producer, added 2.2%.
"I'm going to lean into making sure that every company that wants to come to New York and everyone who wants to live here will never have to worry about reliability and affordability when it comes to their utility costs, " Hochul told the WSJ.
The governor said the power authority may pursue the project alone or in partnership with private entities. According to the WSJ, "The project will also offer a practical assessment of the executive orders Trump signed in May that aim to accelerate development of nuclear-power projects."
The executive orders Trump signed on May 23 would overhaul the Nuclear Regulatory Commission (NRC), accelerate the licensing process for new projects, increase domestic fuel supplies and set aside federal lands for the construction of reactors for the military and AI data centers.
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