Wall Street delivered its strongest session in two months on Thursday after President Donald Trump called off planned military strikes against Iran and signaled a diplomatic breakthrough could arrive within days. The Dow Jones Industrial Average climbed 900 points, the S&P 500 advanced 1.8%, and the Nasdaq Composite rallied 2.1%, erasing losses from a two-day selloff driven by Middle East escalation fears.
What Happened: Markets Rally on De-Escalation
The catalyst was a Thursday evening announcement from President Trump that he had canceled strikes planned for that night against Iranian targets. In a social media post, Trump said the United States was "going to soon sign a deal with Iran" and that talks were progressing toward an agreement that could be finalized "as soon as this weekend," according to reports from Reuters, CNBC, and The New York Times.
The S&P 500's 1.8% gain marked its best single-day performance since early April, contrasting with the recent 950-point Dow plunge on inflation fears. The Dow's 900-point surge represented a 2.1% jump, while the technology-heavy Nasdaq climbed 2.1% as chip stocks led the rebound. Asian markets followed suit on Friday, with South Korea's Kospi soaring nearly 8% and Japan's Nikkei advancing 3.2%, reflecting global relief over reduced geopolitical risk, similar to the rally seen after Digital Asset's $355M funding round.
Why It Matters: Oil Plunges, Supply Fears Ease
Oil markets reacted sharply to the de-escalation. Brent crude futures dropped 3.4% to $87.25 a barrel, their lowest level since April 17, while U.S. West Texas Intermediate fell 3.6% to $84.57, also a near two-month low, according to data from Reuters and Kitco. The decline wiped out much of the risk premium built into crude prices during the prior week's tit-for-tat attacks between Israel and Iran.
The Strait of Hormuz, through which roughly 20% of global oil supply passes, had been at the center of supply disruption fears, as seen when Iran declared the Strait closed days earlier. Trump's reversal eased concerns that the critical chokepoint could be affected by military action, prompting a rapid unwinding of long positions in energy futures.
What's Next: Deal Timeline and Market Watch
Trump's suggestion that a deal could be signed "as soon as this weekend" sets up a critical near-term window for markets. Analysts at ING noted the market reaches an "inflection point in late July" if oil flows do not resume before then, highlighting the time-sensitive nature of any agreement, while market valuations near dot-com bubble peaks add another layer of caution.
Investors will monitor: (1) confirmation of a signed U.S.-Iran agreement, (2) any Iranian response to the de-escalation, (3) oil inventory data for signs of physical market tightening, and (4) Federal Reserve policy signals given the inflation implications of sustained lower energy prices, amid Wall Street's growing crypto embrace and previous Iran strike impacts on digital assets.