Despite ongoing conflict between the United States, Israel, and Iran, with both the Pentagon and Iranian officials describing the day's airstrikes as the "most intense in history," Wall Street stocks rebounded and oil prices fell sharply after U.S. President Donald Trump suggested the Middle East conflict might end "soon."
At Tuesday's market close, the Dow Jones Industrial Average edged down 0.07%, while the S&P 500 declined 0.21%. The Nasdaq Composite saw a marginal gain of 0.01%.
In European markets, the Euro Stoxx 600 Index, which had declined for three consecutive sessions, recovered some losses, finishing 1.65% higher. MSCI's broadest index of Asia-Pacific shares outside Japan rose roughly 3.4%.
Oil prices dropped significantly on Tuesday after hitting three-year highs. Brent crude futures settled at $87.80 per barrel, down $11.16, or 11.28%. U.S. crude futures settled at $83.45 per barrel, falling $11.32, or 11.94%.
President Trump's comments on Monday injected optimism into the market, contrasting with the situation in Iran, where hardliners rallied around new Supreme Leader Mojtaba Khamenei, and the Revolutionary Guard announced a blockade of oil exports unless U.S. attacks ceased. Trump stated that if Iran blocked exports, the U.S. would respond with stronger measures. In an interview with Fox News, Trump expressed openness to dialogue with Iran. U.S. Defense Secretary Pete Hegseth noted that Tuesday would mark the most forceful day of strikes against Iran.
Samir Samana of Wells Fargo Investment Institute noted that West Texas Intermediate crude prices are expected to eventually return to a range of $65 to $75 per barrel, reflecting a strong economic backdrop and corporate earnings.
Samana added, "We will continue to ignore these short-term headlines, as we anticipate the conflict will last weeks or months but not significantly alter the long-term outlook."
Global Rebound?
Improved investor sentiment on Tuesday drove recoveries in European and Asian equities, alongside falling government bond yields and shifting interest rate expectations. European indices opened higher, following gains in Asia, but later gave up some advances. Germany's DAX index rose approximately 1.8%, and France's CAC 40 climbed 2.4%.
Money markets reduced expectations for a European Central Bank rate hike this year, which had been fully priced in just a day earlier. The benchmark 10-year German government bond yield remained largely flat at 2.86%.
Analysts at BlackRock Investment Institute commented, "Market pricing suggests disruptions lasting weeks, not days or months. It indicates the possibility of a stagflationary event, though this is not certain." The yield on the 10-year U.S. Treasury note dipped 0.2 basis points to 4.132% after a significant retreat earlier in the day. According to the CME Group's FedWatch tool, traders are betting on the timing of the Federal Reserve's next rate cut, with the first reduction not expected until July.
Analysts at ING noted that bond yields remain at uncomfortable levels, predicting a slight decline in nominal yields due to reversal trades. In a client report, they cautioned that a structural surge in bonds is not imminent.
The U.S. dollar index, which measures the greenback against a basket of six major currencies, fell slightly, extending Monday's sharp drop. Gold prices rose about 1.66% to $5,221 per ounce. Bitcoin increased 2.6% to $70,007.93.
