US Stocks Erase War Losses, S&P 500 Rallies 1% on Renewed Iran Talks Hope

U.S. stocks rallied Monday to erase all losses since the start of the Iran war, with the S&P 500 climbing 1% to 6,886.24 as investors clung to hopes for a diplomatic resolution even after peace talks collapsed over the weekend and the U.S. announced a naval blockade.

"Markets are taking some encouragement from the fact that the two sides are talking and that the broader ceasefire seems to be holding, for now,” Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute, said.

The rally followed a volatile overnight session where oil prices surged and Asian equities fell. Brent crude jumped 4.4% to settle at $99.36 a barrel, after touching nearly $104 earlier. In Asia, Hong Kong’s Hang Seng index fell 0.9% and South Korea’s Kospi dropped 0.9%. In the U.S., the Dow Jones Industrial Average added 301 points, or 0.6%, while the tech-heavy Nasdaq Composite gained 1.2%. The 10-year Treasury yield ticked down to 4.29%.

The market's reversal highlights a delicate balance, with investors weighing the severe economic risk of a prolonged closure of the Strait of Hormuz against the possibility that both Washington and Tehran have incentives to return to the negotiating table. The next catalyst will be the International Monetary Fund and World Bank spring meetings, where officials are expected to present scenarios for the war's impact on global growth and inflation.

The week began on a tense footing after 21 hours of marathon negotiations between U.S. and Iranian officials in Pakistan ended without a deal. In response, President Donald Trump announced via social media that the U.S. Navy would blockade the Strait of Hormuz, a critical chokepoint for about 20% of the world's oil supply that has been effectively shut by the conflict.

The initial market reaction was decidedly risk-off. "Absent a swift resumption of negotiations, the immediate reaction of financial markets when they open for the trading week will be to push oil prices higher and borrowing costs higher," Mohamed El-Erian, an adviser to Allianz, said before markets opened.

That view was echoed across trading desks. "For markets, this means the relief trade is likely to fade. Oil may see fresh gains, risk sentiment takes a hit again," said Charu Chanana, chief investment strategist at Saxo Markets. Gold, a traditional safe-haven asset, saw its appeal diminish as the dollar strengthened, with the precious metal falling 1.9% to $4,656.29 an ounce.

However, the mood shifted during the U.S. trading session. The S&P 500 clawed back its losses to finish just 1.3% below its all-time high. The recovery was aided by comments from President Trump, who suggested a willingness to re-engage, telling reporters, "I can tell you that we’ve been called by the other side."

This was enough to convince some investors that the worst-case scenario—a full-blown, prolonged military conflict shutting down global energy flows—might be averted. The temporary ceasefire brokered by Pakistan last week, though fragile, had allowed global stock markets to rebound, and Monday's session suggested investors are quick to seize on any signs of de-escalation.

"The key question for Monday is whether markets interpret this as a temporary breakdown in negotiations or a structural collapse of the ceasefire framework," Kyle Rodda, an analyst at Capital.com, told Bloomberg. For now, traders appear to be betting on the former.

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