The US stock market rallied, with the S&P 500 jumping 1.5% and approaching its summer record, while the Dow Jones Industrial Average climbed 693 points, or 1.3%, to an all-time high. The Nasdaq composite also saw a significant leap of 2.1%. This surge was driven by a drop in Brent crude oil prices, which sank 4.7% to $83.77 per barrel, following President Donald Trump's decision to hold off on new strikes against Iran.
Market sentiment was buoyed by hopes that easing US-Iran tensions would lead to lower oil prices, thereby alleviating inflation concerns and reducing the likelihood of the Federal Reserve needing to raise interest rates further. The yield on the 10-year Treasury also fell to 4.68% from 4.75% late Friday, though it remains above its 3.97% level from before the war with Iran.
Analysts noted that Friday's upcoming jobs report is of crucial importance, with economists estimating an 80,000 increase in payrolls for July, following a lower-than-expected 57,000 gain in June. The market is looking for a "Goldilocks" number: soft enough to restrain the Fed from further rate hikes but firm enough to sustain earnings and growth. However, renewed rises in oil prices or strong US data could keep inflation concerns alive and potentially lead to a more hawkish Federal Reserve rate path.
The rally comes after a volatile July where the S&P 500 swung due to oil price fluctuations related to the conflict with Iran. The current drop in oil prices is seen as a key factor in calming Wall Street's inflation worries. Despite the positive market movement, near-term risks remain, particularly if US economic data stays firm or oil prices reignite inflation concerns, potentially prompting the Federal Reserve to raise rates.
