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Bank of America Global Research said oil prices are currently in a “sweet spot” that could keep the Federal Reserve somewhat hawkish, depending on how long elevated prices persist.
In a note, analysts at Bank of America argued that the central bank’s reaction to an oil shock tied to geopolitical developments will depend on the size and duration of the disruption. The Federal Reserve would likely “look through” a temporary spike in oil prices, while a very large shock could prompt a more dovish stance due to risks to the labor market.
However, the bank said a moderate but sustained increase in oil prices could have the opposite effect, reinforcing inflation pressures and keeping policymakers cautious. In that scenario, the Fed could remain more hawkish, with rate hikes becoming a possibility if West Texas Intermediate crude averages roughly $80–$100 per barrel in 2026.
The report added that labor market risks would increase non-linearly with the magnitude of the shock, while inflation pressures could eventually ease if higher oil prices significantly weaken demand. Bank of America concluded that current oil price levels fall within the range where inflation concerns may outweigh growth risks, keeping the Fed tilted hawkish for now—though rate hikes are not its base case.
Merck & Co Inc (NYSE:MRK, XETRA:6MK) announced on Wednesday that it will acquire US biotech firm Terns Pharmaceuticals (NASDAQ:TERN) for $53 per share in cash, valuing the company at approximately $6.7 billion.
This marks Merck’s third multibillion-dollar acquisition in the past year as the company looks to strengthen its portfolio ahead of its top-selling cancer drug Keytruda losing patent protection in 2028.
Terns is developing TERN-701, an oral therapy for chronic myeloid leukemia. Phase 1 trial data reported last December showed a major molecular response rate of up to 75% at 24 weeks, with a tolerable safety profile that supports daily dosing.
Shares of Merck added 2% at about $119 following the announcement, while Terns’ stock was up 5% at about $53.
OpenAI has shut down its AI video app just six months after launch. The decision is about compute costs, an imminent IPO and a company that is pivoting towards the enterprise market.
OpenAI announced on Tuesday that it was shutting down Sora, the AI video generation app it launched to considerable fanfare just six months ago. The company offered a brief farewell on X, promising to “share more soon” about timelines and how users could preserve their content.
Sora proved wildly popular at launch, hitting one million downloads in fewer than five days after its September release. It topped Apple’s App Store charts and generated genuine excitement both inside OpenAI and across the consumer tech world. Then reality set in. By January, downloads had plunged 45%, according to TechCrunch.
OpenAI is gearing up to go public, potentially by the end of this year.
US stocks opened strongly but have eased back from early gains, with the Dow Jones and S&P 500 now up 0.6% and the Nasdaq holding a firmer 0.9% rise.
Early leadership on the S&P came from tech and crypto-linked names, with Robinhood up 6.9%, Super Micro Computer gaining 5.8% and AMD rising 5.4%, while Coinbase added 4.3%.
However, semiconductors have since come under pressure, with Micron, Lam Research and Applied Materials among the main fallers, alongside Western Digital and Seagate, pointing to a more mixed tone beneath the headline gains.
ARM Holdings was the top riser on the Nasdaq 100, up 15% as the chip firm pivoted to making its own AI data-center chips.
US stock futures are pointing to a firm open on Wednesday as falling oil prices and tentative diplomacy around the Middle East conflict lift sentiment, reversing some of Tuesday’s losses.
Nasdaq futures are leading gains, up 1.2%, with those for the Dow Jones and S&P 500 up around 1%.
The moves follow a soft session the day before, when the tech-heavy Nasdaq led declines, falling 0.8% to 21,762, while the S&P dropped 0.4% to 6,556 and the Dow shed 0.2% to 46,124. The Mag 7 tech giants fell sharply, while the Equal Weight S&P outperformed, rising slightly.
The mood has shifted overnight after reports emerged that Washington has sent Tehran a 15-point proposal aimed at resolving the conflict, with Israeli media suggesting the US is pushing for a one-month ceasefire to allow negotiations.
West Texas Intermediate crude oil has fallen 4.5% to $88.20 a barrel, easing fears over inflation and interest rates that have weighed on markets in recent weeks, while still remaining elevated compared to a month ago.
The cautious optimism lifted stock markets elsewhere, with Japan’s Nikkei 225 up 2.87% and Hong Kong’s Hang Seng gaining 1.09%, while in Europe the FTSE 100 was up 1.2% and benchmarks on the mainland were up 1.5%-1.75%.
Analysts warn the situation remains highly fluid, with Iran dismissing US diplomatic overtures as not credible.
“In my view, both sides are playing it close to the vest, neither side is telling the whole truth and nothing but the truth,” said market analyst Kenny Polcari at Slatestone Wealth. “They are each positioning themselves to win. And so the action will remain erratic.
“In the end, while the risk remains real, markets tend to overshoot initially and then rebalance as the picture becomes clearer. I have no reason to think this time is different.”
He said the stability in the market means “investors are beginning to digest and analyze the news flow rather than just reacting to every headline. And that’s an important distinction.”
With the stock market dominated by “algos, momo guys [momentum traders], and headline-driven flows” reacting to posts on X and news stories that get updated all day long, the algorithmic traders “shoot first and ask questions later”.
Volatility remains elevated, contributing to the “ongoing tug of war” in equities, he said, though the VIX index is down 4.1%, leaving it at 25.85, “a level that signals continued anxiety and nervousness in the market”.
He said long-term investors “see these periods very differently. Elevated volatility tends to create opportunities – as strong companies get pulled lower (mispriced) along with the broader market.”
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