U.S. stocks staged their strongest rally in two months on Thursday after President Donald Trump called off planned strikes against Iran, raising hopes that a settlement could restore smoother crude flows through the Persian Gulf. The rally lifted major indexes, pushed oil lower and eased pressure on Treasury yields, even as inflation and AI-spending concerns remained central market risks.
Key Overview
- The S&P 500 rose 1.8% to 7,394.30, while the Dow jumped 929.97 points to 50,848.75 and the Nasdaq advanced 2.5% to 25,809.66.
- U.S. crude fell 2.6% to $87.71, while Brent dropped 2.9% to $90.38 after hopes grew for a deal involving Iran and the Strait of Hormuz.
- Treasury yields declined as investors weighed whether lower oil prices could reduce inflation pressure and limit the need for further Fed tightening.
- AI-linked chip stocks rebounded sharply, though Oracle fell as investors questioned the cost of funding large artificial intelligence infrastructure plans.
Iran Deal Hopes Pull Oil Lower
Wall Street turned sharply higher after Trump said talks with Iran had advanced and that the timing and location of a signing would be announced shortly. The shift in tone followed his decision to call off planned strikes against Iran, easing fears of another escalation in the Middle East.
The market reaction was immediate because investors had been pricing in the risk that continued conflict could disrupt one of the world’s most important oil routes. Trump said the Strait of Hormuz would reopen once a settlement was signed, potentially allowing tankers to resume carrying crude from the Persian Gulf to global buyers.
That helped pull oil prices lower from elevated levels. According to market figures, benchmark U.S. crude fell to $87.71 a barrel, while Brent crude declined to $90.38, still above its pre-war level but low enough to ease some fears of another inflation shock.
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Stocks Recover as Bond Yields Ease
The S&P 500’s jump came after back-to-back declines that had pushed the index back toward early-May levels. The Dow and Nasdaq also recovered strongly, while smaller companies outperformed, with the Russell 2000 gaining 3%.
Bond markets also reflected the improved mood. The 10-year Treasury yield dropped to 4.45% from 4.55% late Wednesday, a meaningful move that suggested traders were reducing expectations for a sustained oil-driven inflation spike.
However, the inflation backdrop remains difficult. Official data showed producer prices rose 1.1% in May, with final demand goods up 2.8% and final demand energy prices rising 10.7%. That keeps pressure on policymakers because higher energy and transport costs can quickly feed into broader consumer prices.
AI Stocks Rebound, But Spending Questions Remain
Technology shares helped drive the rally, especially chip-related names. Marvell Technology climbed 11.1%, extending a volatile run that followed Nvidia CEO Jensen Huang’s suggestion that the company could become the next trillion-dollar company. Lam Research and KLA also posted double-digit gains as semiconductor shares regained momentum.
The rebound did not erase all worries around artificial intelligence valuations. Oracle dropped after investors reacted to its plan to raise large amounts of cash for AI infrastructure. The company expects to raise another $40 billion through debt and equity after already raising $48 billion in the prior fiscal year, according to AI spending concerns reported by Reuters.
That contrast shows the market’s current divide: investors still want exposure to AI growth, but they are increasingly questioning whether aggressive spending will translate into durable profits.
Rate Outlook Still Depends on Oil and Inflation
The oil-price drop may give the Federal Reserve more room to hold rates steady rather than respond to another inflation surge. Traders use FedWatch probabilities to track expected policy moves based on futures pricing, and expectations for another rate increase eased after Trump’s announcement.
Europe showed the global nature of the issue. The European Central Bank raised its key rates by 25 basis points and said inflation is now expected to average 3.0% in 2026, citing a higher energy-price path in its monetary policy decision.
For investors, Thursday’s rally was therefore not only about relief over Iran. It was also a bet that lower crude prices could reduce inflation pressure, support valuations and give risk assets room to recover after a volatile week.
Sources Used: Associated Press / Reuters / U.S. Bureau of Labor Statistics / European Central Bank / CME Group
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