US stocks surged by roughly $550 billion on Monday as traders bet on a 10-day ceasefire between the US and Iran. The rally pushed the S&P 500 up 0.63% and the Nasdaq 1.02%, while oil prices slid — West Texas Intermediate crude fell to near $82.65 a barrel and Brent to about $88.46.
The Ceasefire Offer
The optimism followed a ceasefire offer sent to Tehran on Monday, aimed at reviving the Islamabad Memorandum, a peace deal signed remotely by President Donald Trump and Iranian President Masoud Pezeshkian on June 17. That truce collapsed in July when strikes resumed.
Renewed Hostilities
But the market's relief may be short-lived. US Central Command announced a ninth consecutive night of strikes against Iran. Iranian Parliament Speaker Mohammad Bagher Ghalibaf cast doubt on the ceasefire, saying US actions contradict its peace claims.
Houthi Embargo and Oil Supply Risk
Adding to the pressure, Yemen's Houthis declared a maritime embargo on Saudi shipping through the Bab el-Mandeb Strait. Saudi Arabia exports about 4.4 million barrels of oil per day from the port of Yanbu, with most heading south through that chokepoint. The US Strategic Petroleum Reserve sits at its lowest level since 1983 after a 400 million-barrel release in March, limiting the government's ability to tamp down prices.
Gasoline and Fed Pressure
Traders are pricing high odds of $4 per gallon gasoline by the end of July, about 25% above current levels. A similar relief rally in June faded once strikes resumed, and a fresh oil spike could revive pressure on the Federal Reserve to raise interest rates.
The ceasefire offer is on the table, but with US strikes continuing and the Houthi embargo tightening, the next few days will determine whether the truce can hold — or whether the market's $550 billion bet was premature.
