As investors hailed an Iran-Israel cease-fire that helped to erase a June jump in crude prices and any remaining fears of a summer oil shock, the S&P 500 ended Tuesday on the verge of record territory, indicating that everything is coming together for stock market bulls.
The S&P 500 surged to the verge of record territory Tuesday after Iran and Israel agreed to a cease-fire, despite investors’ natural apprehension about too much of a good thing.
Crude prices fell on expectations that the Iran-Israel dispute would stay on hold, wiping out the June rise that was triggered by the fighting and wiping off concerns about a summer energy shock. While investors sold safe-haven gold (GC00), animal spirits were on exhibit. As a cherry on top, Treasurys rose, lowering yields BX:TMUBMUSD10Y. Jose Torres, senior economist at Interactive Brokers, pointed out that falling oil prices helped allay inflation concerns and that Federal Reserve Chair Jerome Powell at least hinted at the possibility of quicker rate cuts if inflation data cooperated.
“The geopolitical premium is plunging, as crude oil and gold prices dive on a reduced need for safe-haven assets,” he wrote in a note.
While the tech-focused Nasdaq-100 NDX returned to record territory, the S&P 500 SPX ended the day up 67.01 points, or 1.1%, at 6,092.18, only 0.9% off its record finish of 6,144.15 set on February 19. Over 500 points, or 1.2%, were added to the Dow Jones Industrial Average (DJIA).
According to Dow Jones Market Data, the global benchmark, West Texas Intermediate crude for August delivery (CL.1) (CLQ25), fell 6% to close at $64.37 a barrel on the New York Mercantile Exchange, its lowest level since June 5. This brings the decrease over the last three sessions to 14.3%.
Fears surrounding the Israel-Iran war focused on the possibility of a wider conflict that could jeopardize Middle Eastern crude flows, drawing particular attention to the Strait of Hormuz, a vital waterway that is responsible for approximately one-fifth of seaborne oil trade and has long been perceived as being susceptible to Iranian retaliation. President Donald Trump’s order on Saturday for the United States to bomb three Iranian nuclear reactors heightened such anxieties.
However, after an Iranian missile assault on a U.S. military installation that was widely publicized beforehand and was mostly seen by analysts as a symbolic reaction meant to prevent further U.S. attacks, those concerns subsided by Monday afternoon. Even though it looked uncertain early on Tuesday, investors completely overcame their concerns once Trump announced a cease-fire agreement.
Is the cease-fire going to last? It is not certain. Aniket Ullal, CFRA’s head of ETF research, stated in a letter on Tuesday that Washington Analysis, the organization’s policy-analysis division, believes there is a 55% probability it will stay in place.
And that’s not the only worry; the deadline of July 9 for the termination of the reciprocal tariff moratorium is rapidly approaching. Ullal penned.
However, analysts noted that the excitement around the cease-fire was also boosting optimism for a positive tariff resolution.
“Shall the truce hold, it has the potential to significantly boost confidence and trust in President Trump’s ability to quell violence around the world and may even offer Washington leverage as we approach the July 9 deadline for trade deals,” said Torres of Interactive Brokers.
According to him, that could therefore improve the likelihood that the contentious tax and spending measure supported by Republicans will pass. Despite the fact that it would probably be attacked for not cutting spending, its adoption would likely lead to rallies in cyclical commodities and risky assets “while being conducive to economic reacceleration because it will motivate capital expenditures, hiring, and consumption.”
We’ll find out in time. However, according to a letter from Louis Navellier, founder of Navellier & Associates, the market has decided that an escalation between Israel and Iran is not possible at this time.
He noted that all major stock indexes opened above their closing level on June 11, just before Israel’s surprise attack on Iran, and that the Cboe Volatility Index VIX, commonly known as Wall Street’s fear gauge, had fallen below 18 below its long-term average. Crude oil was also back down to $65 a barrel.
“Yet another example of why the market doesn’t seem to take geopolitical risks very seriously,” he stated.
