Nasdaq 100 and S&P 500: Stock Index Futures Rally as Oil Sell-Off Lifts Sentiment

Oil Sell-Off Gives Stocks an Early Lift

The U.S. stock market is closed Monday for the Memorial Day holiday, but Wall Street is still active. Futures trading opened the shortened week with a strong risk-on tone as investors reacted to a sharp drop in oil prices and improving sentiment surrounding the Middle East.

Early Monday trading showed June E-mini Dow futures rising nearly 400 points, while S&P 500 futures gained close to 1%. Nasdaq-100 futures led the move with gains above 1.3%. The move was notable because it developed under holiday trading conditions where lighter volume can sometimes exaggerate price swings.

Investors appeared to react quickly to signs that tensions surrounding energy supplies may be easing. Reports suggesting that the Strait of Hormuz could reopen helped improve sentiment while comments from President Donald Trump indicating progress in discussions with Iran encouraged traders to remove some of the geopolitical premium that had recently entered crude prices. Oil prices dropped more than 5% overnight and stock futures responded immediately.

The reaction was not surprising because crude had started becoming a concern for equity investors. During the recent rally in oil, traders were already beginning to look beyond energy prices themselves and think about broader effects on inflation, consumer spending and corporate costs. Rising fuel prices have a way of working through the economy and investors had started wondering whether another move higher in crude could eventually create additional inflation pressure.

Monday brought a different story. Oil moved lower and buyers quickly returned to equities. Technology and growth stocks appeared to attract much of the early buying interest as investors stepped back into areas of the market that tend to perform well when inflation concerns ease and pressure on interest rates appears less threatening.

The market did not need much encouragement. Lower oil prices removed one concern and buyers immediately noticed.

Earnings Strength Gives Way to Economic Concerns

The positive start to the week comes as Wall Street begins moving into a different phase of the market cycle. Corporate earnings season is mostly finished and investors have already had a large amount of positive news to digest.

More than 90% of S&P 500 companies have already reported results and first-quarter earnings growth has remained strong. Strong corporate performance has helped support stock prices this year and has allowed investors to look past some concerns developing elsewhere. Earnings gave buyers a reason to stay engaged even while inflation worries and higher yields remained in the background.

But markets eventually move on.

As earnings season fades, investors often start shifting attention toward broader economic conditions. Economic reports, inflation readings and interest rate expectations tend to take on greater importance once the steady flow of company earnings begins slowing.

One area drawing increasing attention is the bond market. Treasury yields have continued moving higher in recent weeks, with the 10-year Treasury yield moving toward levels not seen since early 2025 and the 30-year Treasury yield touching levels not seen in many years.

Higher yields are not automatically negative for stocks. Investors generally tolerate rising yields when economic growth remains healthy because stronger growth can support earnings and business activity. But rapid moves higher can create a different reaction because they increase borrowing costs and eventually pressure stock valuations.

That issue has not disappeared.

Investors have largely looked through rising yields while earnings remained strong, but if rates continue climbing the market could become more sensitive to the move.

PCE Inflation Report Could Become the Week’s Biggest Test

The biggest scheduled event of the week will likely arrive Thursday with the release of the Personal Consumption Expenditures price index, commonly known as the PCE report.

This remains the Federal Reserve’s preferred measure of inflation and traders understand its importance. Recent inflation data has stayed more stubborn than many investors expected and markets will be looking for signs that price pressures are either easing or becoming more deeply rooted throughout the economy.

A softer reading would likely support Monday’s positive tone and reinforce expectations that inflation pressure may continue moderating. A hotter reading could create a very different reaction and quickly shift attention back toward interest rates.

Market expectations have already started changing. Earlier in the year investors focused heavily on the timing of potential rate cuts. More recently some traders have started asking whether rates may remain elevated longer than previously expected.

There are also several company reports later this week that could attract attention. Retailers including Costco, Best Buy and Dollar Tree may provide another look at consumer spending behavior while AI-related names remain in focus after Nvidia recently reinforced the artificial intelligence spending story with another strong outlook.

Short-Term Forecast

Monday’s futures action gives investors a positive start to the shortened week, but several important events still sit directly ahead. Lower oil prices helped ease immediate inflation concerns and encouraged investors to step back into risk assets, but Treasury yields, inflation data and changing Federal Reserve expectations remain major factors.

For now buyers appear to have the advantage because lower oil prices helped remove one source of market pressure. But the week is just beginning, and traders have several opportunities ahead to rethink the story. By Thursday the conversation on Wall Street could look very different.

More Information in our Economic Calendar.