US equities staged a sharp rebound on Monday, with all three major indexes closing more than 1% higher as oil prices plunged following comments from Donald Trump about delaying military action against Iran.
The rally marked a turnaround from last week’s declines, as investors reacted to signs of potential de-escalation in the Middle East conflict, even as uncertainty lingered over the credibility of reported talks between Washington and Tehran.
Stocks rebound as oil prices tumble
The S&P 500 rose 1.13% to close at 6,580.25, while the Nasdaq Composite gained 1.39% to 21,948.55.
The Dow Jones Industrial Average climbed 631 points, or 1.39%, to end at 46,211.53.
Earlier in the session, equities had been under pressure amid escalating geopolitical tensions.
However, sentiment shifted after Trump said he had ordered a five-day pause on strikes targeting Iranian energy infrastructure.
“I am pleased to report that the United States of America, and the country of Iran, have had, over the last two days, very good and productive conversations regarding a complete and total resolution of our hostilities in the Middle East,” Trump wrote.
“Based on the tenor and tone of these in-depth, detailed, and constructive conversations, which will continue throughout the week, I have instructed the Department of War to postpone any and all military strikes against Iranian power plants and energy infrastructure for a five-day period, subject to the success of the ongoing meetings and discussions.
The announcement triggered a sharp drop in oil prices, with Brent crude and West Texas Intermediate both falling more than 10%. Lower energy prices helped ease inflation concerns and lifted equities broadly.
Uncertainty persists despite optimism
Despite the market rally, confusion remains over whether any talks between the US and Iran have actually taken place.
Iranian officials denied direct negotiations, contradicting Trump’s claims of “major points of agreement.”
Markets also pulled back from intraday highs after reports from Iranian state media disputed the existence of talks, highlighting the fragile nature of the recovery.
Cyclical sectors lead gains as volatility eases
The rally was broad-based, with all 11 sectors of the S&P 500 advancing.
Cyclical stocks outperformed, particularly those sensitive to economic activity and energy costs.
Airlines including Alaska Air, American Airlines, and United Airlines gained as fuel costs declined, while cruise operators such as Norwegian Cruise Line and Carnival Corp also moved higher.
Bank stocks rebounded, with the S&P 500 banking index posting its biggest gain since before the conflict.
Meanwhile, the CBOE Volatility Index retreated after earlier hitting a two-week high, signaling easing market anxiety.
Investors also scaled back expectations for interest rate hikes, with the probability of a Federal Reserve increase by December dropping to around 12%, according to CME FedWatch data.
While Monday’s rally offered relief, market participants remain focused on geopolitical developments, oil price movements, and upcoming economic data for further direction.
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