Global stock markets rallied, with the S&P 500 and Nasdaq Composite posting one-week highs, and the Dow Jones Industrial Average hitting a new record high on Monday. This surge in optimism followed a tentative deal between the United States and Iran to extend a ceasefire and reopen the Strait of Hormuz, allowing global crude flow to resume. The S&P 500 rose 1.7%, the Dow climbed 468 points or 0.9%, and the Nasdaq composite jumped 3.1%. Europe also saw gains, with the STOXX 600 moving higher. However, the S&P 500 and Nasdaq ended the session mixed on Thursday as traders looked ahead to the Federal Reserve's first meeting under new Chair Kevin Warsh, while the Dow continued its rally to a record high of $51,999.67.
Oil prices eased considerably on the news, with Brent crude falling 4.8% to $83.17 per barrel, returning to early March levels. WTI crude oil prices fell more than 4% to a three-month low, and the price of Brent Crude ticked even lower to about $76 a barrel on Thursday, falling below $80 per barrel for the first time in months. This drop in oil prices is expected to alleviate inflationary pressures on households and businesses, which have faced higher costs for goods ranging from food to fuel. Average gas prices in the US dropped below $4 for the first time in months. Oil giants like Shell, Chevron, and Exxon saw their stock prices fall on the news.
The tentative deal, which includes a memorandum of understanding signed by President Trump and Iranian President Masoud Pezeshkian, aims to end the war. The agreement is expected to lead to the full reopening of the Strait of Hormuz on Friday and trigger 60 days of negotiations on Iran's nuclear program. However, market analysts caution that the relief rally might not be sustainable due to underlying economic weakness and that the 60-day negotiation window presents a "tail risk." A collapse in these talks could cause oil prices to spike again and reverse the market rally.
In the bond market, Treasury yields eased, with the 10-year T-note yield dropping to a one-month low of 4.418%, on hopes that lower oil prices would reduce the need for central banks to raise interest rates. Traders are now betting on only a 57% chance of a Federal Reserve rate hike this year, down from 71% a week ago, according to CME Group data. The European Central Bank had already raised interest rates last week due to the conflict, and while the Fed is expected to keep rates steady this week, a hawkish "dot plot" from the Federal Reserve indicated that policymakers see a hike as more likely than a cut this year, and a potential increase in 2027.
Technology stocks led the overall market higher, alongside airline stocks benefiting from lower fuel costs and mining stocks rallying due to reduced oil prices being dovish for central banks. Momentum stocks also experienced a buying spree, with the iShares MSCI USA Momentum Factor ETF rising 1.46% in premarket trading. SpaceX's market capitalization briefly surged to $2.94 trillion, surpassing Microsoft's $2.93 trillion, before settling at $2.65 trillion. However, other tech giants like Advanced Micro Devices (down more than 7%), Micron Technology (down 6%), and Nvidia (down more than 2%) saw declines as investors rotated out of chipmakers and into cyclical stocks.
