Dow futures surge 550 points as US-Iran pause sends oil lower

Wall Street futures rebounded sharply Monday after a temporary halt in US-Iran hostilities drove oil prices lower and revived demand for risk assets.

Dow Jones Industrial Average futures jumped 550 points, or 1.05%, after the US and Iran paused military strikes over the weekend for a second straight day.

"The removal of near-term escalation risk is prompting a rotation back into the sectors that were most punished by the geopolitical premium," said Lori Calvasina, head of US equity strategy at RBC Capital Markets. "Lower oil prices also ease the inflation concern that had been pressuring rate-sensitive names."

S&P 500 futures rose 0.94%, while Nasdaq 100 contracts climbed 1.58%, with technology and travel shares leading the advance. Energy stocks lagged as crude prices tumbled, with Brent crude falling 4.88% to around $92 a barrel and West Texas Intermediate dropping more than 5% to $84.84, according to market data. The 10-year US Treasury yield edged lower alongside oil, reflecting reduced inflation expectations, while the US dollar index held near recent levels.

The truce, now in its second day, removes the immediate threat of supply disruptions through the Strait of Hormuz, a chokepoint for about a fifth of global crude flows. Investors are watching for any signs the ceasefire could hold, with the next catalyst likely to come from official statements from Washington or Tehran.

Tech and growth stocks lead the rebound

The Nasdaq 100's 1.58% gain outpaced the broader market as investors piled into mega-cap technology names that had been sold off during the height of tensions. Travel and leisure stocks also rallied on expectations that lower fuel costs would boost margins and consumer demand. The Cboe Volatility Index declined, reflecting easing anxiety after last week's spike to a two-month high set on July 24.

Rate-sensitive sectors such as real estate and homebuilders also gained as the drop in oil prices reinforced expectations that the Federal Reserve could begin cutting rates as soon as September. The shift marked a sharp reversal from last week, when escalating Middle East tensions had pushed the S&P 500 to its worst session in weeks.

Oil's decline removes a key inflation worry

The drop in crude prices was the clearest beneficiary of the geopolitical détente. Brent crude had surged to a two-month high last week as the US and Iran exchanged strikes near the Strait of Hormuz. Iran's indication that it would halt attacks if the US maintains its pause has shifted the supply outlook, with prediction markets now pricing a 6.2% probability of crude reaching a new all-time high by the end of September, down from 7% a day earlier, according to Vera data.

The broader market rally also reflected an unwind of defensive positioning that had built up during the escalation. Sectors such as utilities and consumer staples, which had outperformed during the uncertainty, gave back some gains as investors rotated into cyclicals and growth names. Trading volumes were expected to be elevated as fund managers adjusted positions ahead of the Federal Reserve's policy meeting next week.

The sustainability of the rally hinges on whether the ceasefire holds. Any resumption of hostilities could quickly reverse Monday's gains, particularly for oil-sensitive sectors and the broader equity market. For now, traders are treating the pause as a buying opportunity after last week's selloff, with the Dow on track for its best single-day gain in months.

This article is for informational purposes only and does not constitute investment advice.