US & Europe Markets May 7, 2026: Stocks Slip as Iran Peace Deal Keeps Investors on Edge

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Wall Street and European equities pulled back from record highs on Thursday, May 7, as oil prices swung on conflicting signals from US-Iran peace negotiations. Iran was evaluating a US ceasefire proposal but no agreement materialized — keeping global markets in a holding pattern after a powerful tech-earnings-driven rally. With the AI profit cycle still intact and a pivotal jobs report due Friday, Thursday’s dip looked more like a breather than a reversal.

US Markets: Consolidation After Record Run

US stocks retreated modestly on Thursday, pulling back from Wednesday’s record-high closes driven by strong chipmaker earnings. The S&P 500 fell 0.4% to close at 7,337.11, the Nasdaq Composite dipped 0.1% to 25,806.20, and the Dow Jones Industrial Average lost 0.6% to settle at 49,596.97.

Two headwinds drove the session lower. First, uncertainty lingered over the US-Iran conflict: CNN reported Iran was expected to respond to Washington’s peace proposal as soon as Thursday, but no deal emerged, and oil’s intraday swings rattled sentiment. Second, Arm Holdings (ARM) reversed sharply after initially rallying on a strong fiscal Q4 2026 earnings beat — net profit rose to $313 million from $210 million a year earlier — but investors sold the news on concerns about chip supply constraints, pulling semiconductor stocks lower.

Earnings elsewhere kept the underlying narrative positive. Datadog (DDOG) surged more than 30% after reporting Q1 EPS of $0.60 (versus estimates of $0.51) on revenues of roughly $1 billion, up 32% year-over-year — signing eight-figure AI deals with two of the world’s largest technology companies. Apple notched its first intraday record since December. Weekly jobless claims came in cooler than expected, and S&P 500 companies remain on track for their strongest quarterly profit growth in more than four years. Societe Generale strategist Manish Kabra called it “record EPS beats, all-time-high margins and sharply upgraded 2026 growth expectations.”

Ten-year US Treasury yields rose 2.8 basis points to 4.382% as reignited oil-inflation concerns offset the positive jobs read. The New York Federal Reserve’s April consumer survey showed one-year inflation expectations rose to 3.6% from 3.4% in March, a reminder that energy cost pressures continue to shape household expectations even as near-term gas price fears have eased.

European Markets: Giving Back Wednesday’s Gains

European equities declined, unwinding a portion of Wednesday’s 2.2% STOXX 600 surge. The STOXX Europe 600 slipped 1.1% to close at 616.42. The Euro STOXX 50 closed at 5,972.65, Germany’s DAX finished at 24,663.61, France’s CAC 40 settled at 8,202.08, and the UK’s FTSE 100 closed at 10,276.95.

Brent crude futures settled at $100.06 per barrel, down 1.2%, after swinging in a nearly $5 intraday range on shifting Iran deal headlines. Earlier in the session, both benchmarks had fallen as much as $5 a barrel on optimism that Washington and Tehran were nearing a limited ceasefire. Prices recovered significantly after the Wall Street Journal reported that Saudi Arabia and Kuwait had reopened their airspace and military bases to the US military, clearing the way for the White House to restart “Project Freedom” — the operation to escort commercial vessels through the Strait of Hormuz. WTI settled at $94.81, down 0.28%. Brent remains roughly 40% above its late-February level when the war began.

Investec market strategists warned: “Certainly the clock is ticking towards a point when the pace at which oil inventory drawdowns at the current pace become unsustainable and energy prices jump materially.” The energy-inflation overhang continues to weigh on European equities even as global corporate earnings deliver positive surprises.

Key Macro Variables

  • Brent crude: $100.06/barrel (−1.2%) | WTI: $94.81 (−0.28%)
  • 10-yr US Treasury yield: 4.382% (+2.8 bps)
  • EUR/USD: 1.174 (little changed)
  • USD/JPY: 156.76 (yen weakening; had hit 10-week high of 155 on Wednesday)
  • 1-year US inflation expectations (NY Fed): 3.6% (↑ from 3.4% in March)
  • MSCI APAC ex-Japan: Hit a fresh all-time high (+1.6%) — Asia bucking the Western pullback

Morgan Stanley’s Daniel Skelly noted that oil volatility “may be having less of an effect on the stock market’s day-to-day performance, but its longer-term impact on inflation is still an open question.”

What Asia-Pacific Investors Should Watch on Friday

  • US non-farm payrolls (Friday): The monthly jobs report is the week’s biggest macro event. A strong number could push Treasury yields higher; a weak print may revive rate-cut speculation. Both outcomes carry implications for yen dynamics and BoJ policy timing.
  • Iran ceasefire developments: Any confirmed deal — or breakdown — will move oil markets sharply. Brent around $100 is the key watchline; a break lower on ceasefire confirmation would benefit Asian importers and relieve inflation pressure across the region.
  • AI earnings momentum: Despite Thursday’s pullback, the underlying AI-driven profit cycle remains intact. Datadog’s 30%+ surge underscores that AI cloud spending is broadening beyond the hyperscalers into mid-cap software.
  • US dollar and Treasury yields: Rising yields at 4.382% keep pressure on growth valuations globally, and USD/JPY at 156.76 remains a focal point ahead of US Treasury Secretary Bessent’s planned Tokyo visit for yen discussions.

Sources

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