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Central bank meetings usually set the tone for macro markets, but the run-up to the U.S. midterm elections has handed that role to crude. Oil prices matter more than central bank decisions ahead of the midterm elections because crude has become a political pressure point that rate setters cannot steer. The Iran military operation sits at the center of that shift, giving Iran and the White House opposite interests in how calm or unsettled markets look before the vote. With Big Tech stocks already under strain after earnings, a sustained move in crude now reaches well beyond the energy complex.
James Stanley, StoneX Media Senior Market Analyst, covers macroeconomics, price action and event-driven moves across equities, fixed income and currencies. That coverage gives insight into what is driving crude oil, the Nasdaq and the political risk building around the U.S. midterm elections.
Oil prices have overtaken central bank meetings as the dominant driver of macro markets in the run-up to the U.S. midterm elections. Crude oil is the one factor that monetary policymakers cannot control, and its influence on cross-asset pricing has grown accordingly. Stanley singles out oil as the variable that matters "despite all of the central bank meetings and normal drivers for macro markets", a view the price action has so far supported. Specifically, rate decisions and policy guidance cannot steer a crude market that is reacting to the Iran military operation. Consequently, the Federal Reserve calendar explains less of the recent cross-asset price action than crude oil does. A strong rally in West Texas Intermediate crude from a closely watched round-number support level shows how quickly that influence can reassert itself.
"He wants equity markets to be nice and bubbly as we go into the election," Stanley says of President Donald Trump, setting out why crude has turned political. Oil prices give Iran and the White House opposing incentives ahead of the U.S. midterm elections, since calm equity markets support the administration while unsettled ones work against it. The Iranian side, in Stanley's reading, wants markets rattled in order to chip away at President Donald Trump's majority in Congress. Notably, the stakes extend beyond the vote itself, because a split Congress would make it harder for the administration to advance its agenda in the second half of the term. Crude oil therefore trades with a political dimension around the midterm elections that goes beyond standard supply and demand.
Crude oil strength adds pressure to Nasdaq tech stocks at a moment when Big Tech earnings are already weighing on the AI trade. Amazon and Intel both sold off sharply after their results, following a similar post-earnings drop in Google a day earlier. That run of losses has fed a growing number of claims that the AI bubble has popped. As a result, a single move in crude oil now reaches well beyond energy, spilling into the tech stocks already under pressure from earnings. If crude oil buyers press their advantage, Stanley links the move directly to the tech-heavy index, saying "I think this is something that equates to a larger pullback so far in the Nasdaq".
Claims that the AI bubble has burst remain difficult to confirm, which keeps the link between oil and tech a question of risk rather than certainty. According to Stanley, perfectly timing a bubble popping is "a perilous quest that is most likely rooted or going to end up being rooted in failure". Prominent voices such as Ken Griffin have described the AI trade as a bubble, yet a bubble can only be confirmed once it has burst. Conversely, a range-bound S&P 500 shows that the broader equity market has so far absorbed the pressure better than the Nasdaq. That uncertainty is why crude oil, a market outside the tech sector entirely, can tip sentiment in either direction around the midterm elections.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: James Stanley, StoneX Media Senior Market Analyst
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Crude oil has become the political pressure point of the U.S. midterm elections, carrying more weight for macro markets than central bank meetings. With Iran and the White House pulling in opposite directions and Big Tech already under strain, oil now sets the tone well beyond energy.
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