Market Update: Stocks Surge as Strait of Hormuz Reopens

This week wrapped up on a positive note for stocks, with all three major indexes climbing over 1% after Iran declared that the Strait of Hormuz is now “fully open.” This announcement followed a temporary ceasefire agreement between Israel and Lebanon, which is a significant diplomatic development.

The S&P 500 and Nasdaq Composite both reached new all-time highs. Specifically, the S&P 500 has seen 13 gains in the past 14 days, while the Nasdaq is currently enjoying its 14th straight increase.

However, it’s important to note that this ceasefire is temporary. There’s uncertainty over whether it will last, especially considering that the U.S. is still enforcing a blockade on Iranian shipping through the Strait.

The announcement about the Strait’s status had an immediate impact on oil prices, causing a significant drop. Brent crude oil fell by 9.8%, settling at $82.21 per barrel. Analysts believe prices could continue to decline if the situation improves further. If you’re interested in this trend, there’s an ETF that might be worth considering right now.

This ETF Could Benefit from Easing Tensions

With oil prices dropping and the Strait of Hormuz reopening, it’s not surprising that stocks are on the rise. Lower oil prices don’t just affect the energy sector; they influence a wide variety of industries, from retail to agriculture, especially those reliant on transportation and heavy machinery.

Wider economic impacts are noticeable as well, particularly in Asian nations like China, Japan, and South Korea, all of which heavily depend on oil from the Strait of Hormuz.

For instance, South Korea gets about 60% to 70% of its crude oil via this route. The ongoing conflict had previously sent South Korean stocks tumbling, with the iShares MSCI Korea ETF (EWY +3.30%) suffering over a 20% drop during the conflict. Yet, it has since made a robust comeback, hitting record highs recently.

Interestingly, EWY was one of the standout ETFs last year, nearly doubling in value due to strong demand for memory chips from major players like Samsung and SK Hynix.

Before the Iran crisis, the ETF had risen over 50%, and with ongoing high demand for memory chips likely continuing until at least 2027, it stands to gain even more if the conflict subsides and the market stabilizes. Moreover, Korean stocks are benefitting from more shareholder-friendly governance practices, and with a price-to-earnings ratio of 20.4, they look significantly cheaper compared to the S&P 500.

Although EWY had good momentum before the war, it’s expected to bounce back strongly as geopolitical tensions ease.