S&P500: US Indices Climb as Iran Headlines Ease Oil Pressures

Stocks Surge After Trump Signals Productive Talks With Iran

The major U.S. stock indexes are higher shortly after the mid-session on Monday after President Trump said the U.S. and Iran had productive talks and paused planned military strikes. Although nothing was concrete, the news gave investors hope that the conflict could wind down relatively soon.

At 18:00 GMT, the Dow was up more than 700 points, while the S&P 500 and Nasdaq were also up sharply. During the pre-market trade, before the Trump news, the stock indexes were under pressure due to fears of rising oil prices and a wider economic slowdown.

Don’t Call It a Bottom Yet

Trump’s remarks changed sentiment quickly, showing how sensitive the markets were tied to geopolitical news. From a technical perspective, it was likely a response to an oversold market. It’s too early to tell if this is a turning point. That’s not going to be known until we get a structured bottom and some follow-through buying. Often, the first rally from a major low is driven by short-covering. This is followed by another break then a breakout rally with big volume. If you think you’ve missed “the bottom”, I think you’ll have time.

Oil Drops 9% and That Changes Everything for Stocks

A steep drop in oil prices also contributed to the market’s turnaround. Crude fell more than 9% after the news as longs liquidated due to the possible easing of tensions in the Middle East. One takeaway from today’s rally is that it could be a sign that supply disruptions may not worsen. But in order to build a proper bottom quickly, today’s momentum shift is going to have to contribute something, not just cheaper prices. I would like to see an improvement in overall market confidence and reduced fears of inflation and recession tied to energy prices.

Lower oil prices are good for the economy and good for company profits. They also reduce pressure on businesses and consumers. From a sector standpoint, lower fuel prices are likely to be supportive for airlines and travel companies.

The Rally Is Broad and That’s the Most Encouraging Sign

Banks, industrials and tech all moved higher at the same time today. That doesn’t happen on a short-covering rally. JPMorgan and Morgan Stanley were up as recession fears backed off. Airlines were the big winners today. Makes sense. Cheaper fuel is money in their pocket. Even tech caught a bid. The way I see it, when you can’t find a sector that’s down on a day like this, that tells you something. This wasn’t just nervous shorts getting out. There were real buyers in there today.

Don’t Ignore the Fine Print

Iran pushed back fast. Their media said direct talks aren’t happening and that took some air out of the rally. I’ve seen this before. One side floats a headline and the other side denies it within the hour. Getting these two to a table is one thing. Getting them to agree on anything is another. And even if they do, the damage is done. You can’t unbreak a refinery with a handshake. Oil stays elevated until the infrastructure is back and that takes months not days.

More Information in our Economic Calendar.