Hormuz reignites the war, the market tense, the futures market predicts that Brent prices will fall below $90 by the end of the year.

Iran and the United States have erupted into direct conflict in the Strait of Hormuz, with both oil prices and inflation expectations reaching critical levels, and the market is re-pricing geopolitical risks. According to Xinhua News Agency and CCTV News, on May 3rd local time, President of the United States Donald Trump announced the launch of an operation called "Freedom Plan" to "guide" stranded ships to leave the Strait of Hormuz. The US military stated on May 4th that two ships flying the US flag successfully passed through the Strait of Hormuz. Iran fired multiple cruise missiles and drones at US Navy ships and commercial ships "protected" by the US military that day, causing the US military to sink six small Iranian boats attempting to obstruct the passage of commercial ships. Bloomberg columnist John Authers' latest analysis suggests that Trump's "Freedom Plan" has directly led to the outbreak of hostilities between the US and Iran, and the month-long ceasefire agreement between the US and Iran is crumbling. Geopolitical risk advisor Tina Fordham of Fordham Global Foresight stated, "Iran's missile attack today is a signal that they still have the ability to cause pain and will not be forced to yield. The choices facing the United States are becoming clearer: either fight a protracted war it does not want to fight, or accept a bad, embarrassing agreement." Oil prices and inflation: two "unwelcome milestones" The escalation of conflict has directly pushed up oil prices. According to Bloomberg data, the futures market is currently pricing Brent crude oil at $95 by the end of this year, reaching a new high since the outbreak of the conflict, surpassing the peak reached during the previous Iranian attack on Qatari liquefied natural gas facilities. In early April, this forecast was around $80. The current Brent crude oil futures price is around $113. Changes in the forecast market better explain the shift in market sentiment. According to Polymarket data, the probability of the normalization of shipping in the Strait of Hormuz by the end of June has dropped from over 90% two weeks ago to less than 50%. The oil price shock is also transmitting to inflation expectations. The US two-year inflation swap rate has exceeded the Federal Reserve's 3% upper target limit, reaching the highest level since 2022. John Authers pointed out that with the midterm elections approaching, this will put pressure on the US government to seek negotiating solutions. Viktor Shvets of Macquarie believes that the most likely outcome is a return to a framework similar to the 2015 Iran nuclear agreement (JCPOA) Iran restricting its nuclear program in exchange for the lifting of energy export restrictions. He said, "This is not a victory for either side, but at present, there are no other slightly rational options." AI capital spending boom supports US stocks against energy shocks Despite escalating geopolitical risks, US stocks remain near historic highs. John Authers attributes this resilience to the profit support brought about by the AI capital spending boom. Among the "Tech Big Seven" US stocks, except NVIDIA has not yet reported earnings, the rest of the companies have delivered strong quarterly results. Andrew Lapthorne of Industrial Bank of France pointed out that investors could have celebrated the prosperity of corporate profits if not for the real threat of war in Iran and supply chain disruptions. However, this capital spending feast also comes with its costs. Lapthorne's data shows that the size of stock buybacks has fallen to about 4% per year, and dividend yields and buyback yields have dropped to levels seen only during the peak of the dot-com bubble when companies had much less distributable cash than they do now. At the same time, the stock risk premium has turned negative. Calculating the S&P 500 earnings yield minus the 10-year Treasury yield shows that investors are actually being "fined" 88 basis points for taking on additional stock risks. John Authers believes that this indicator reflects the market's extreme enthusiasm for stocks, with almost no room for error. Peter Berezin of BCA Research points out a potential risk: the real threat of AI investments is not AI being proven to be a bubble, but rather after the successful transformation of the economy into an AI-driven model, there will no longer be a need for continuous massive capital investment. He uses the internet as a analogy data transmission volumes continued to grow, but capital spending has already stabilized. Wall Street predicts that the free cash flow of super-sized cloud computing vendors will decline by over 70% from the peak by the end of 2026. This article is reprinted from Wall Street View. Editor: Chen Wenfang.