U.S. stocks rose on Tuesday morning even after the U.S. military struck Iranian missile launch sites and other targets overnight, as investors clung to hopes that a deal between Washington and Tehran could still end the war.
The S&P 500 rose 48 points, or 0.7%, to 7,522 on Tuesday morning, the Dow Jones Industrial Average gained 0.2% and the Nasdaq Composite jumped 1%, extending a run that included modest gains on Friday — when the S&P added 0.4%, the Dow climbed 0.6% and the Nasdaq gained 0.2% — before U.S. markets were closed on Monday for the Memorial Day holiday.
Oil moved unevenly alongside the stocks. Benchmark U.S. crude declined $3.67 to $92.97 a barrel, while Brent crude gained $3.03 to $96.45 a barrel after falling nearly $5 on Monday. Average gasoline prices stood at $4.49 on Tuesday, down from $4.53 a week earlier, and "Average gasoline prices declined in 40 states over the last week as falling oil prices helped offset earlier price cycling in many markets, bringing relief to motorists after several states had already seen sharp increases," Patrick De Haan said.
Investors said a key reason markets held up was persistent hope that diplomacy, not escalation, will prevail. President Trump told aides on Saturday that a peace agreement had been "largely negotiated," an assessment markets appear to be pricing in even as Tehran protested the U.S. strikes. Iran's Foreign Ministry called the strikes a "grave violation" of the countries' ceasefire.
"At this point in time, formally ending hostilities and reopening Hormuz is nothing but positive," Adam Crisafulli said, capturing the mood among traders who are weighing the economic prize of a reopened waterway. If a peace deal were to take hold and the Strait of Hormuz reopened, global shipping would resume there and roughly 20% of the world's oil could flow through the strait again — a volume that underpins the market's sensitivity to any signal of de-escalation.
That bet shows up in price action and commentary. Nigel Green said, "Markets increasingly believe economic pressure will force diplomacy to move faster than military escalation," and former administration economist Kevin Hassett argued bluntly that "energy prices are going to plummet" if the conflict ends and supply fears ease. Traders scrolling yahoo updates and price screens treated those scenarios as the main path for now.
Still, the facts on the ground complicate the narrative that diplomacy will simply overtake force. The overnight U.S. strikes are a fresh reminder of how quickly tensions can flare, and Iran's sharp public rebuke risks hardening positions even as negotiators talk. Stocks have climbed to new records since higher oil sent energy costs upward after the Iran war began in late February; higher oil pushed gasoline and other energy costs up and helped drive inflation to its highest level in almost three years.
The market's next test is whether a negotiated end to hostilities can survive military setbacks. If diplomacy holds and Hormuz traffic resumes, energy prices and inflationary pressure should ease, a scenario that would validate the optimistic bets priced into stocks. If not, the same oil flows and price swings that have kept markets jittery could reverse the recent gains. For now, traders and motorists are watching oil and the ceasefire closely: gasoline prices have fallen modestly and motorists are seeing relief, but the fragile truce that investors are banking on has been punctured by the latest strikes.
