Markets Show Cautious Optimism as Oil Rises and Chip Stocks Strengthen

Global markets opened with cautious optimism amid ongoing uncertainty over a potential US-Iran agreement and strong earnings reports from two AI-related stocks on Wall Street. Oil prices rose by 0.5% to $89.5 per barrel, marking six consecutive days of gains, the longest streak since April. In Asia, market performance was mixed: South Korea's KOSPI surged about 5%, Japan's Nikkei remained flat, Hong Kong's Hang Seng fell 1%, and Shanghai Composite saw a slight increase.

The semiconductor sector showed early positive signals on Wall Street, with South Korean companies SK hynix and Samsung Electronics rallying after strong earnings from Korean chipmaker Korweave and optimistic forecasts from Super Micro. Despite this, Wall Street closed lower the previous day, led by technology stocks, as hopes for reopening the Strait of Hormuz faded and doubts about a US-Iran deal grew. The S&P 500 dropped 0.3%, Nasdaq fell 0.6%, and the Dow Jones was unchanged. Futures indicated a slight rise of up to 0.2% ahead of the US Consumer Price Index release, which could influence Federal Reserve interest rate decisions.

In Tel Aviv, following an excellent report from Bank Hapoalim, investors awaited Bank Leumi's earnings. Dual-listed stocks showed minimal impact, with Tower Semiconductor expected to open down about 3% and Camtek up similarly. Naix, which lost roughly 25% over two days, was set to rise over 3%. The TA-35 index ended slightly higher after a volatile day, while the TA-90 continued declining. The banking index rose 2.5%, contrasting with a 2% drop in the insurance index and sharp declines in defense stocks. Elbit Systems and Turpaz shares fell despite strong earnings, as investors anticipated even better results. Naix continued to react negatively to disappointing reports.

In currency markets, the effect of joint US-Japan intervention faded, with the yen weakening toward 160 per dollar, a level that might prompt further intervention by Japanese authorities. This reversal follows a sharp yen strengthening after last month's intervention. Derek Halpenny of MUFG Bank noted that the yen's weakness could persist as long as equity markets remain resilient and volatility stays low.

Wall Street valuations are currently as high as during the dot-com bubble, with the S&P 500's Shiller PE ratio around 42, last seen in early 2000 before a major crash. However, earnings growth is robust, with S&P 500 companies reporting a 50% year-over-year profit increase, the fastest since mid-2021. Approximately 86% of firms beat earnings estimates, surpassing the five-year average of 78%, with an average earnings surprise of 29%. The technology sector is expected to see about 70% profit growth, and eight of eleven sectors are projected to achieve double-digit earnings growth this quarter.