Wall Street indexes closed at record levels on Friday, as easing geopolitical tensions in West Asia led to a broad increase in risk-taking in global markets, sending stocks higher and oil lower.The S&P 500 and Nasdaq Composite indexes posted their third straight record close, while the Dow Jones Industrial Average posted its strongest close since late February. Small stocks led the gains, with the Russell 2000 outperforming to finish at a record high.The S&P 500 rose 1.2% to a new all-time high, marking its third straight record close and capping its longest weekly winning streak since late October. The Nasdaq Composite rose 1.5%, also marking its third straight record close.The Dow Jones Industrial Average rose as much as 1,100 points during the session before paring its gains to close up 868 points, or 1.8%, its strongest close since late February.Gains were broad-based, with the Russell 2000 outperforming large-cap stocks to end at a record high, as cooling energy prices lifted margin-sensitive small companies.The rise has been sharp: the broader US market has risen more than 12% since bottoming out in late March, driven by expectations that the United States and Iran may avoid the worst of the economic fallout from the conflict.
This optimism was strengthened after Iran indicated the reopening of the Strait of Hormuz during a temporary ceasefire. US President Donald Trump said the war “must end very soon.”The rise was supported by a sharp drop in oil prices after Iranian Foreign Minister Abbas Araqchi said the Strait of Hormuz would remain open to commercial shipping during a 10-day ceasefire between Israel and Lebanon brokered by the United States. A development also claimed by Trump. The waterway is a vital channel for global crude flows, and guarantees of uninterrupted passage have eased fears of supply disruption. However, the Iranian Parliament Speaker later claimed (after US markets were closed during the session) that Hormuz was not open and ships would pass through it. US President Donald Trump increased optimism, saying that Washington expects to reach an agreement to end the conflict and will work with Iran to recover enriched uranium, a major sticking point in the negotiations.Oil markets reacted quickly. Brent crude fell 9% to settle at $90.38 a barrel after hitting a session low of $86.09, while West Texas Intermediate crude fell 11.45% to $83.85. Although prices remain above pre-war levels near $70, they have retreated significantly from their late March highs near $120.Nick Johnson said, according to what was reported by Reuters: “The decline in energy prices has a greater impact on small companies because their profit margins are lower. It is beginning to become clear that the United States and Iran want to see this behind them.”Sectoral movements reflected this shift. Shares of major energy companies such as ExxonMobil and Chevron fell, while airline shares including American Airlines and United Airlines rose amid expectations of lower fuel costs.Among individual stocks, Netflix fell more than 9% after issuing weak growth forecasts and announcing the departure of Chairman and Co-Founder Reed Hastings.Bond markets also rose, with US Treasury yields falling as inflation fears eased alongside lower energy prices.
The benchmark 10-year yield touched its lowest level since mid-March, while the two-year yield – sensitive to the Federal Reserve’s policy expectations – also fell.“The whole movement was driven by falling oil prices,” Tom Di Galloma said. “Are we really going to get a long-term ceasefire and reopen the strait? I don’t know. It seems like it will take some time to work itself out. But now I think that’s what’s happening.”
“It’s all good news coming out of the Gulf.”The US dollar fell to multi-week lows as investors abandoned safe haven positions.“The dollar’s weakness is mainly due to the market reducing the geopolitical risk premium,” George Vesey said.In Europe, traders trimmed their expectations for interest rate hikes by the European Central Bank and the Bank of England, supporting sovereign bond markets across the region.