MPC Markets Morning Call — 18th August 2026: Stocks Slip as Oil Tops $90, Iran Truce Expires

Wall Street retreated on Monday as traders took a breather after a record-setting week. The S&P 500 shed 0.5% to 7,748.14, the Dow Jones Industrial Average slipped 0.5% to 53,460.02, and the Nasdaq Composite declined 0.3% to 26,644.91. Despite the pullback, the broader picture remains constructive — the S&P 500 had closed at all-time highs on Wednesday and Thursday last week, briefly touching 7,816.70 intraday to cross above 7,800 for the first time.

Sentiment soured as oil prices surged and the US–Iran diplomatic picture darkened. Declines were broad-based, with ten of eleven S&P 500 sectors finishing lower — only energy advanced. The Philadelphia Semiconductor Index rose 1.6%, bucking the trend as chipmakers continued to benefit from AI infrastructure demand. Notable movers included Meta (-3.5%), Microsoft (-3.0%), and SanDisk (+8.9%) after its investor day committed to 15% annual sales growth through FY30.

The earnings backdrop continues to underpin the market. Roughly 85% of S&P 500 companies have beaten profit forecasts this season, and AI-driven spending remains a tailwind. JPMorgan’s Mislav Matejka maintained a positive stance, noting that “internal participation is broadening, and cyclical sectors are likely to keep rallying,” with new index highs expected into year-end.

The 60-day memorandum of understanding between the US and Iran expired on Monday without a meaningful peace deal. President Trump told reporters he was “not interested” in extending the agreement and separately threatened to “bomb the s— out of” Oman if it interfered with US negotiations over the Strait of Hormuz. The truce, signed at the Palace of Versailles in June, had been effectively defunct for weeks as both sides exchanged strikes over commercial shipping in the strait.

Multiple fronts remain active across the region. Israel killed a senior Hezbollah commander in southern Lebanon over the weekend, Houthi militants attacked ships in the Red Sea, and several vessels were hit by projectiles in the Strait of Hormuz. Iran has used the relative lull in fighting to prepare for a potentially broader confrontation, installing hardline veterans in key security posts and accelerating missile and drone production, according to the Wall Street Journal.

Oman is negotiating with Iran on a framework for managing the strait, but the US is not part of those discussions. Iran said a “shipping map” has been finalised as part of a broader agreement, but emphasised that a deal would not necessarily translate into a reopening. Treasury Secretary Scott Bessent warned that Washington is preparing to announce “unprecedented economic measures” against Tehran.

The yield on 30-year US Treasuries surged nearly six basis points to 5.31% on Monday, surpassing last month’s high to reach its loftiest level since 2007. The move was echoed globally, with Canadian 30-year yields hitting their highest since 2010 and German rates reaching 2011 levels. The 10-year Treasury yield edged up 3bp to 4.72%, after last week’s auction drew the highest financing cost since 2007.

The bond selloff reflects a toxic confluence: persistent above-target inflation at 3.4%, near-$2 trillion annual fiscal deficits, a wave of AI-related corporate debt issuance, and waning demand from traditional long-dated bond buyers. Barclays’ head of US rates strategy Anshul Pradhan cautioned that “a constructive view would require some combination of a downside fiscal surprise, slower AI-related issuance, a shift in Treasury’s issuance strategy, and a sustained run of soft activity data.”

Oil prices jumped more than 2% on Monday, with Brent crude settling near $91 a barrel and WTI at $84.65. The advance came as the US–Iran truce expired and prospects dimmed for a swift reopening of the Strait of Hormuz. Meanwhile, economic data from last week showed some softening — core inflation moderated, employers unexpectedly cut jobs in July, and retail sales fell by the most in more than a year — but not enough to change the Fed’s calculus. Rate expectations shifted, with the CME FedWatch tool pricing a 67% probability of rates being held steady in September and a roughly 33% chance of a quarter-point hike.

The AI investment narrative is maturing. After last quarter’s strong results from Microsoft and Amazon reassured markets that demand for AI infrastructure remains robust, the debate has shifted from whether Big Tech’s spending spree will pay off to which companies will deliver sustained returns. Capacity constraints persist, cloud growth is accelerating, and the hyperscalers are being re-rated as long-term structural beneficiaries.

Wellington Management’s Brian Barbetta said hyperscalers “are being recognised as companies that are likely to be very large beneficiaries of this AI paradigm shift” and noted the firm has increased its positioning. Janus Henderson’s Richard Clode expects hyperscalers to grow profits and cash flow faster than incremental capex growth by late 2027 into 2028, with Amazon one of his fund’s biggest overweight positions. “Today’s capex is tomorrow’s sales,” he said.

There were risks flagged, too. BCA Research’s Noah Weisenberger warned that neocloud providers like CoreWeave and Nebius could be vulnerable if new capacity comes online and pricing normalises, recommending a long-hyperscalers, short-neoclouds trade. Meanwhile, Anthropic’s revenue run rate surpassed $65 billion — up more than sevenfold from its pace at the end of last year — bolstering the company’s IPO plans for this autumn. Bank of America reiterated a Buy on Micron with a $1,550 price target, projecting $230+ EPS by FY30 and arguing the Street is “anchoring to the wrong earnings model.”