U.S. stocks and Treasuries climbed Monday after the United States and Iran agreed to a ceasefire, a move that pulled oil prices down and eased fears of a wider conflict. The S&P 500 rose 1.2%, while the yield on the 10-year Treasury note fell 8 basis points to 4.12%, reflecting a shift toward safer assets.
Ceasefire cuts geopolitical risk
The ceasefire, announced Sunday by mediators in Oman, halts months of escalating tensions in the Persian Gulf. Investors had been bracing for potential disruptions to oil shipments through the Strait of Hormuz. With that threat now off the table, crude prices dropped 4% to $72 a barrel.
Oil drop eases inflation worries
Lower oil prices are a welcome sign for central bankers. The Federal Reserve has been watching energy costs closely as it weighs when to cut interest rates. A sustained decline in crude could help bring overall inflation closer to the Fed's 2% target, giving policymakers more room to ease.
Confidence returns to markets
The ceasefire also boosted investor sentiment broadly. The Dow Jones Industrial Average added 350 points, and the Nasdaq climbed 1.5%. Trading volumes were above average as money moved back into equities after weeks of caution. Bond prices rose, pushing yields down, as traders priced in a lower risk premium.
The rally was broad-based. Energy stocks fell on the oil drop, but gains in technology, financials, and consumer discretionary sectors more than offset the losses. The VIX, often called Wall Street's fear gauge, slid to 15 from 19 last week.
Analysts said the ceasefire removes a major overhang that had kept portfolios tilted toward cash and defensive positions. The next focus will be on whether the truce holds and what it means for global supply chains.
