Stocks soar, oil drops as Strait of Hormuz partially reopens

MANHATTAN (CN) — Wall Street set some new records this week after news of a ceasefire between Israel and Lebanon and increased traffic in the Strait of Hormuz.

The Iran war is far from over, but for investors, any positive news was cause for celebration, particularly news that drove Brent crude oil to roughly $90 per barrel.

Investors posted big gains on Tuesday, allowing the S&P 500 to set a new record high. By the closing bell on Friday, the Dow Jones Industrial Average gained 1,531 points for the week, while the S&P and Nasdaq netted 310 points and 1,566 points, respectively.

“The fact that the S&P has returned to all-time highs despite the war in Iran and oil that remains over $90 per barrel is a testament to the strength of the U.S. economy and the resilience of American businesses,” Chris Zacarelli, chief investment officer at Northlight Asset Management, said after the mid-week rally.

Mixed economic data did little to slow gains this week, even after inflation came in hotter than expected.

The producer price index rose 0.5% in March, but that was about half of what analysts had forecast. Excluding food and energy, the index rose 0.2%, also below expectations.

High energy costs again drove much of the increase, though rising demand from artificial intelligence is also pushing up producer prices. Prices for electronic components rose 19% from a year earlier, Grace Zwemmer, an economist at Oxford Economics, wrote in an investor’s note.

“With demand for AI unlikely to cease, we expect producer prices in this sector will remain elevated in the near term,” she wrote, adding that oil prices should dissipate in the second half of 2026.

On Wednesday, the Federal Reserve’s Beige Book for April showed the economy still treading water. Eight of the 12 districts reported slight to modest growth, while two reported slight to modest declines.

The labor market changed little from March, with companies continuing a “no hire, no fire” approach and some increasing their use of temporary or contract workers. The report also said productivity gains from artificial intelligence led some companies to scale back hiring.

More concerning, the small-business optimism index fell 3 points last month to below its 52-year average of 98 for the first time since April 2025.

Only 11% of small-business owners expect conditions to improve, the third straight monthly decline and the lowest level since October 2024. Six in 10 owners also reported significant supply chain disruptions.

NFIB Chief Economist Bill Dunkelberg said in a statement, “The dramatic spike in oil prices has spooked consumers and owners alike,” adding that many small businesses are having to “absorb those higher input costs and pass them along to their customers.”

Investors found some positive news in manufacturing surveys from the Federal Reserve banks of New York and Philadelphia, both of which showed growth last month. New York’s index rose 11 points, versus expectations for a 0.5% decline, while Philadelphia’s rose 26.7 points, more than double the expected 12-point gain.

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