US stocks recovered on Monday as investors grew cautiously optimistic that the military conflict between Israel and Iran may remain contained, easing fears of a broader geopolitical escalation. The pullback in oil prices contributed to the positive market sentiment, helping risk assets rebound after last week’s sharp losses.
Major Indexes Bounce Back
The Dow Jones Industrial Average rose 325 points, or about 0.8%. The S&P 500 advanced 0.9%, while the Nasdaq Composite surged 1.5%, led by strength in technology stocks. The gains followed Friday’s sharp sell-off, when the Dow plunged more than 700 points and all three major indexes lost over 1% amid heightened tensions in the Middle East.
Oil Prices Ease After Initial Spike
WTI crude oil futures declined over 1% to $71.79 a barrel on Monday, retreating from overnight highs above $77. Oil prices had surged following Israel’s initial strike on Iran, but the prospect of negotiations between the two nations helped cool prices. Gold also gave back some gains after rallying last week as investors sought safe-haven assets during the initial escalation.
Signals of Diplomatic Openings
Investor optimism was bolstered by reports suggesting potential diplomatic efforts to de-escalate the conflict. The Wall Street Journal reported that Iran has signaled through intermediaries its willingness to restart nuclear deal negotiations, provided the US stays out of the conflict. Iran has also reportedly asked Saudi Arabia and other Arab nations to pressure Israel into a ceasefire and facilitate discussions with President Donald Trump.
Ongoing Military Activity and Risks
Despite the diplomatic overtures, military actions continued into a fourth day. Both Israel and Iran targeted each other’s energy facilities, raising concerns about further disruption to global oil markets. Iran also indicated it is considering closing the Strait of Hormuz, a critical shipping route for global oil supplies. Meanwhile, Israel claimed to have achieved “aerial superiority” over Iranian airspace.
Tech Stocks Lead Market Recovery
Technology stocks, particularly the so-called “Magnificent Seven,” led Monday’s rebound. Tesla gained over 1%, Meta Platforms rose more than 2%, and Palantir — seen as a potential beneficiary of heightened global conflict — advanced more than 3%. The easing of oil prices encouraged investors to shift back into higher-risk assets after last week’s sell-off.
Fed Decision Looms Amid Soft Manufacturing Data
Weaker-than-expected manufacturing data added to market discussions ahead of the Federal Reserve’s interest rate decision on Wednesday. CME Group’s FedWatch tool shows a 100% probability that the Fed will keep rates unchanged, even as President Trump continues to pressure Fed Chair Jerome Powell for a rate cut. Elevated oil prices due to the conflict are expected to diminish the likelihood of any near-term rate reductions.
Tariff Policy Remains Uncertain
Separately, U.S. Bank’s Robert Haworth told CNBC that Trump’s tariffs are likely to remain in place for the foreseeable future. Although a 90-day pause on tariffs is set to expire July 9, Treasury Secretary Scott Bessent indicated that extensions are possible for countries negotiating in good faith. Commerce Secretary Howard Lutnick also signaled that the 10% baseline tariff on imports is likely to stay intact, with price effects gradually showing up later this year.
Conclusion
While markets welcomed signs of potential de-escalation between Israel and Iran, ongoing military activity and persistent policy uncertainties continue to keep investors on edge. The path forward for stocks will likely remain sensitive to both geopolitical developments and upcoming Federal Reserve policy decisions.
