The S&P 500 surged by 1.5% on Monday, bringing it to within 0.1% of its record closing high of 7,620.90 set on June 2. This rally was largely fueled by a significant drop in oil prices, with Brent crude falling 4.7% to $83.77 per barrel. West Texas Intermediate crude also fell 5.3% to trade around $80. The decline in oil prices was prompted by President Donald Trump's decision to hold off on new military strikes against Iran and signals that talks to restore shipping through the Strait of Hormuz were underway, easing geopolitical tensions and concerns about inflation.
The broader market saw strong gains across various indices. The Dow Jones Industrial Average climbed 693 points (1.3%) to reach a fresh all-time peak, while the tech-heavy Nasdaq Composite jumped 2.1%. The Nasdaq 100 Index advanced 1.8%, and the Philadelphia Semiconductor Index (SOX) added 1.1%. These gains were also supported by robust corporate earnings, with roughly 15% of the S&P 500 by market capitalization scheduled to report this week. Analyst Matt Orton of Raymond James Investment Management highlighted energy, healthcare, utilities, and industrials as sectors to watch.
Companies with high fuel bills benefited significantly from the drop in oil prices. United Airlines flew 5.8% higher, American Airlines climbed 5%, and Norwegian Cruise Line Holdings steamed 6.6% higher. Boeing also saw an 8% increase after receiving regulatory clearance for its 737 MAX aircraft. Amazon.com Inc. added 4.6%, contributing to the positive sentiment. The market's advance also reflected the fastest U.S. manufacturing activity expansion in over four years and a strong earnings season, with S&P 500 companies on track for a 47% year-over-year earnings per share growth for the spring, the strongest since 2021.
Lower energy costs are seen as a disinflationary signal, easing pressure on the Federal Reserve to maintain aggressive interest rate hikes. This positive sentiment extended to the bond market, where the yield on the 10-year Treasury note fell to 4.68% from 4.75% on Friday, though it remains elevated from its 3.97% level before the conflict with Iran. The sustained high yields have already pushed average long-term mortgage rates to a one-year high, indicating the delicate balance between geopolitical relief and underlying financial conditions.
