U.S. stocks experienced their best day in two months, with drops in oil prices, following President Donald Trump’s cancellation of plans to bomb Iran. This decision raised expectations for a potential agreement that could restore the global oil supply.
The S&P 500 increased by 1.8%, reversing its recent downturn to return to early May levels. The Dow Jones Industrial Average jumped 929 points, or 1.9%, while the Nasdaq composite surged by 2.5%. The market responded positively after Trump announced on social media that discussions with Iran had escalated to senior leadership levels and a signing location and time would be revealed soon.
Reaching an agreement with Iran could reopen the Strait of Hormuz, enabling oil tankers to transport crude from the Persian Gulf to global markets. As a result, the price of benchmark U.S. crude dropped 2.6% to $87.71 per barrel, and Brent crude fell 2.9% to $90.38. Despite this decline, prices remain above the approximately $70 level seen before the conflict.
Concerns over the conflict had been heightened due to recent U.S.-Iran skirmishes, threatening the fragile ceasefire. Elevated oil prices driven by the conflict have fueled worldwide inflation. A report released on Thursday indicated U.S. wholesale prices rose more than anticipated in May. The European Central Bank responded by increasing interest rates to curb inflation. Although higher rates can reduce inflation, they can also slow economic growth and depress investment values, including stocks and cryptocurrencies.
AI stocks have been particularly volatile, leading to fluctuations in the U.S. stock market. Large swings have occurred as stocks reached record highs before declining sharply. The concern is that AI stocks rose too quickly due to excessive enthusiasm, with values sometimes shifting dramatically within hours.
AI stocks had already started recovering on Thursday before Trump’s announcement. Marvell Technology’s stock surged by 11.1%, following a volatile period marked by a dramatic 16.7% drop, a 9.6% rise, and further declines of over 5% over consecutive days. Prior to this, Marvell experienced a one-day 32.5% surge—its largest ever—after Nvidia CEO Jensen Huang remarked on its potential to become “the next trillion-dollar company.” The company’s market value exceeded $190 billion at that time.
Chip-making companies also saw significant gains, with Lam Research jumping 12.7% and KLA rising 12.9%.
Despite a strong profit report, Oracle’s stock decreased by 8.5% as the company announced plans to raise $40 billion this fiscal year through borrowing and stock sales, following $48 billion raised the previous year. These measures are part of ongoing AI investments that have raised questions about the returns and productivity AI will generate.
Overall, the S&P 500 advanced by 127.31 points to 7,394.30. The Dow Jones Industrial Average climbed 929.97 points to 50,848.75, and the Nasdaq composite increased 640.16 points to 25,809.66.
Treasury yields dropped sharply as lower oil prices reduced inflationary pressure. The 10-year Treasury yield fell from 4.55% to 4.45%, a notable shift in the bond market. Continued decreases in oil prices could lead the Federal Reserve to maintain its primary interest rate throughout the year, instead of raising it as anticipated due to strong inflation and a robust employment landscape. Following Trump’s announcement, traders reduced their expectations for a federal funds rate hike, according to CME Group data. The Fed, under its new chair Kevin Warsh, might even resume interest rate cuts if inflation pressures ease. Warsh was appointed by Trump, who has consistently advocated for lower rates.
Smaller companies could benefit significantly from lower interest rates, as many rely on borrowing for growth. The Russell 2000 index, representing the smallest U.S. stocks, recorded a market-leading 3% rise.
Globally, European indexes rose modestly after mixed results in Asia. London’s FTSE 100 increased by 0.5%, while Hong Kong’s Hang Seng fell by 0.7%.
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