Stocks Unfazed by Higher Oil Prices and Iran Setback: June 1, 2026

A setback in US-Iran negotiations is sending interest rates and crude north as Tehran vows to block the Strait of Hormuz in response to so called ceasefire violations. The latest sticking point in a conflict that has now exceeded three months involves demands that a deal include Israel stopping aggressions in Lebanon and Gaza. But stocks are unfazed by the geopolitical hostility as we enter the first trading day of June, with the Nasdaq 100 and Dow Jones benchmarks jumping to fresh records irrespective of the inflationary and slowdown risks presented by ongoing disagreements. A big beat on ISM’s manufacturing gauge certainly helped to buoy animal spirits, as the indicator soared to a four-year high in light of strong momentum related to the AI buildout. Cost pressures were indeed a worry in the print, but Wall Street is counting on accelerating earnings growth and a patient Fed willing to look through the oil shock as reasons to stay bullish against the backdrop of 2026 already carrying double-digit percentage YTD gains before halftime. Despite the index buoyancy; however, only 2 of the 11 major sectors are gaining today, as tech and energy counter losses in the other segments and subcategories. Yields are climbing in bear-flattening fashion led by the monetary policy shorter tenors as rate hike bets strengthen across the curve. Elsewhere, the greenback is firmer, cyclical commodities are advancing, volatility protection instruments are experiencing demand. Conversely, tighter financial conditions are weighing on precious metals.

AI Drives Surge Manufacturing Surge

Manufacturing activity surged to a 48-month high in May as the AI buildout bolstered transaction momentum and output. The Institute for Supply Management’s Purchasing Managers’ Index (PMI) for manufacturing leaped to 54, arriving ahead of the anticipated 53 and April’s 52.7. New orders, production, backlogs and exports all accelerated to 56.8, 54.3, 52.2, and 50.6 from 54.1, 53.4, 51.4 and 47.9. In May, a mix of supply-push and demand-pull inflationary pressures stemming from both the spike in energy costs and robust capital expenditures contributed to the prices component of the PMI hitting 82.1, an elevated level when compared to results over the longer term, but the rate of charge increases decelerated marginally from the prior period’s 84.6. Employment, meanwhile, remained below the contraction-expansion threshold of 50, as factory job creation continued to be nonexistent. However, there’s hope that once much of the AI infrastructure is built, payrolls in the sector will recover, although growth in automation and robotic technologies may counter the need for aggressive hiring.

Past performance is not indicative of future results.

AI Continues to Be the Answer to Rising Yields, Crude

AI trades continue to be the answer to rising yields and crude, since the buoyant capital expenditure trends in tech are hardly affected by headwinds felt by the cyclically oriented, rate-sensitive sectors. Indeed, elevated oil prices, heavy borrowing costs and waning consumer spending capacity are justifications for investors to neglect old school stocks in favor of high-powered growth names that are projected to meaningfully expand earnings. Similar to today, meanwhile, I’m expecting that a plethora of jobs numbers in this week’s economic calendar will help sustain equities, as ongoing hiring amidst subdued unemployment will strengthen confidence regarding the health of the cycle, with sinking real wages likely to be overlooked by headline stability. Still, Wall Street’s ability to counter negative headlines could be tested, although enthusiasm related to upcoming SpaceX IPO alongside healthy data is poised to keep dip buyers active.

International Roundup

China’s Manufacturing Weakens but Avoids Contraction

Today’s publication of the China RatingDog General Manufacturing Purchasing Managers Index from S&P Global and the Saturday release of the government’s equivalent benchmark both depicted the country’s factories weakening last month. The RatingDog gauge stayed above the contraction-expansion threshold of 50 with a 0.4 point decline to 51.8 and it exceeded the economist consensus estimate of 51.4. The government manufacturing version was less benign, sinking from 50.3 to 50, which depicts no change in the level of activity and is weaker than the economist consensus estimate of 50.2. Unlike the S&P version, the official PMI is focused on large state-owned businesses. The May print followed a brief two-month period during which goods production barely exceeded the contraction-expansion boundary.

On a positive note, the government’s Composite PMI, which includes both goods production and services, climbed from 50.1 to 50.5. The gauge benefited from the services industry PMI ascending by 0.7 points to 50.1, a result that surpassed the economist consensus estimate of 49.5. The S&P print, while declining, remained in positive territory for the sixth-consecutive month. Even with the gauge depicting softening goods demand, it stayed above the long-run average of 50.8. Demand was strong enough to cause backlogged orders to increase for the fourth straight month. Meanwhile, S&P notes that consumer goods companies increased staffing levels, helping to partially offset declines in payrolls among other types of manufacturers.

Companies noted that input costs ascended at a faster rate than the long-term average. Higher costs of raw materials and energy along with supply chain disruptions caused by international conflicts were the main culprits. Nevertheless, companies are still optimistic despite confidence moderating slightly. Reasons cited for the positive sentiment included the following:

• Anticipated increases in market demand
• Rising new orders
• Business expansion
• New client development
• Improved sales channels
• New product launches,
• Technological breakthroughs
• Improved production capacity

South Korea Trade Surplus Grows, Beats Expectations

South Korea’s strength in manufacturing AI products helped the country grow its trade surplus from $23.7 billion in April to $26.9 billion last month, according to a preliminary release. The year-over-year (y/y) 53.2% jump in exports strengthened from 48% in the preceding month and blew past the economist consensus estimate of 48.4%. It was also stronger than the 20.8% y/y import gain. May purchases from foreign markets were expected to be up 21.5% following the 16.7% y/y growth in the preceding month. Exports of computer chips were nearly three times the level in May of 2025 as companies worldwide have been building AI infrastructure. Shipments of computers also surged although the value of steel and vehicles sent abroad sank 5.9% and 2.1%.