Stocks shake off Iran jitters as AI pushes market up, even amid oil climbs and Hormuz crisis

Global stock markets traded at record highs on Monday, fueled by relentless demand for artificial intelligence-related assets. This surge in AI stocks helped offset concerns over escalating U.S.-Iran tensions and rising oil prices, which had threatened global oil flows and economic stability.

The MSCI All-World index saw a modest gain, pushing toward new peaks, mirroring similar performance in markets from Tokyo to Seoul. Investors are closely monitoring the U.S.-Iran conflict, particularly developments in the Strait of Hormuz. Reports indicate that U.S. forces struck Iranian targets over the weekend, with Tehran retaliating, while Kuwaiti defenses intercepted missile and drone strikes. Brent crude futures rose nearly 3% to $94 a barrel, prompting fears of rising interest rates to combat potential inflation spikes.

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Even though there have been attacks from both sides, the market is holding on to the fact that negotiations are ongoing, and an elusive Iran/US deal to end the war in the Middle East and to reopen the Strait of Hormuz will still be found.

Despite the geopolitical risks, market sentiment remains cautiously optimistic, largely attributed to ongoing negotiations between Washington and Tehran. Kathleen Brooks, XTB research director, noted that the market is holding onto the hope of an eventual deal to end the conflict and reopen the Strait of Hormuz. However, she cautioned that any delay in reaching an agreement could negatively impact market sentiment, especially with several key macroeconomic releases expected later in the week.

The strength of the AI sector was further underscored by data showing South Korea's exports growing at their fastest annual rate in over four decades in May, reaching a record $87.75 billion. NVIDIA CEO Jensen Huang's upcoming speech at the Computex trade show in Taiwan is also anticipated to highlight the industry's advancements and Taiwan's pivotal role in AI development. European stocks showed a marginal decline, with gains in energy shares being counteracted by losses in airlines and defense sectors.

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As the focus switches to a raft of macro releases later this week, investors will need to watch how this plays out, and any delay in reaching a deal could knock market sentiment.