Futures tied to the major U.S. stock indices jumped sharply after the United States and Iran reached a temporary ceasefire in their conflict, which has lasted more than a month. Tehran’s agreement to permit safe tanker traffic through the Strait of Hormuz has also eased concerns over potential global energy supply disruptions, sending crude prices sharply lower. Gold rebounded alongside a weakening U.S. dollar, while Shell (NYSE:SHEL) lowered its first-quarter gas production outlook and warned that the conflict has created ongoing uncertainty.
Futures rally
U.S. stock futures climbed strongly on Wednesday as investors welcomed the ceasefire agreement, which helped avert what could have been a costly escalation in the Middle East.
As of 03:19 ET, Dow futures were up 1,076 points, or 2.3%. S&P 500 futures gained 168 points, or 2.5%, while Nasdaq 100 futures rose by 799 points, or 3.3%.
Wall Street’s major indexes had been largely subdued in the previous session as investors watched nervously ahead of a U.S. deadline demanding that Iran reopen the Strait of Hormuz or face potential military action. Earlier Tuesday, U.S. President Donald Trump warned that the United States would wipe out Iran’s “civilization” if his conditions were not met, prompting debate about whether the statement was rhetorical or a serious threat.
Eventually, a last-minute agreement mediated by Pakistan was reached, a development welcomed by markets. Global stocks surged and oil prices dropped, while U.S. government bonds rallied as traders revived expectations that the Federal Reserve could still lower interest rates later this year. Prior to the ceasefire, many bets on rate cuts had faded amid fears that an energy shock triggered by war could push inflation higher.
Analysts at Vital Knowledge said in a note that companies benefiting from the conflict — including energy producers, commodity chemicals firms and defense contractors — “will probably suffer aggressive profit taking” after the ceasefire. In contrast, consumer discretionary stocks “should see the biggest rally.”
Focus turns to the U.S.–Iran ceasefire
Trump said in a social media post that the agreement followed discussions with leaders in Pakistan, which has recently played a mediating role between Washington and Tehran. After Pakistan urged the U.S. president to step back from his Tuesday 8 p.m. Eastern deadline, Trump agreed to pause any military strikes on Iran for two weeks.
Iranian Foreign Minister Abbas Araghchi said Tehran would “cease their defensive operation” and allow “safe passage” through the Strait of Hormuz, provided shipping movements are coordinated with the Iranian military. Pakistani Prime Minister Shehbaz Sharif has invited officials from both countries to Islamabad for talks scheduled on Friday.
Israel, which launched a joint offensive against Iran alongside the United States in late February, backed Trump’s decision, according to a statement from Prime Minister Benjamin Netanyahu’s office. However, the statement did not address Lebanon, where the Iran-backed group Hezbollah has been targeted by Israeli forces.
While the agreement provides room for both sides to pursue a longer-term settlement, analysts at BCA Research cautioned that “[a] near-term reprieve in the Iran conflict will not erase medium-term and strategic tensions.”
Oil drops below $100 a barrel
Oil prices fell sharply following the ceasefire announcement, slipping back below the $100-per-barrel threshold, though they remain significantly above levels seen before the conflict began.
By 03:44 ET, Brent crude — the global benchmark — had declined more than 13% to $94.85 per barrel, while U.S. West Texas Intermediate crude dropped 14.8% to $96.23 per barrel.
Before hostilities erupted in late February, Brent had been trading around $70 per barrel. Once the conflict began, prices surged to roughly $120 per barrel at one stage, raising fears that higher energy costs could push inflation higher and slow global economic growth.
A key driver of the surge was the Strait of Hormuz, the narrow shipping route off Iran’s southern coast that handles about one-fifth of global oil flows. Tehran effectively blocked the passage, severely disrupting energy shipments worldwide.
Asian economies, which rely heavily on oil transported through the strait, were particularly vulnerable. Meanwhile, attacks on energy infrastructure in Persian Gulf countries also disrupted natural gas shipments to Europe. Even though the United States is a net exporter of oil, gasoline prices still climbed domestically as global crude prices increased.
Analysts at ING said attention will now turn to whether tanker traffic through the Strait of Hormuz begins to recover.
“[A] significant pick-up in volume would weigh further on oil prices and reverse the stagflationary investment trends witnessed in markets over the last month,” they wrote. Stagflation refers to an economic trend of persistent inflation combined with weak growth.
Gold rises as the dollar weakens
Gold prices climbed to their highest level in nearly three weeks on Wednesday as markets reassessed short-term risks following the ceasefire announcement.
Spot gold rose 2.4% to $4,818.63 an ounce by 03:57 ET (07:57 GMT), after earlier reaching its highest level since March 19. U.S. gold futures for June delivery gained 3.4% to $4,843.57 an ounce.
Despite gold’s traditional status as a safe-haven asset, it had struggled during much of the conflict. Surging oil prices fueled inflation concerns and strengthened expectations that the Federal Reserve might keep interest rates higher for longer — typically a negative factor for non-yielding assets such as gold.
Investors instead moved into the U.S. dollar, which made gold more expensive for buyers using other currencies. However, renewed optimism about easing tensions in the Middle East weakened the dollar on Wednesday, with an index tracking the greenback against a basket of major currencies falling by more than 1%.
Shell cuts gas outlook and warns of ongoing uncertainty
Even as markets adjust to the ceasefire, some analysts warn that the economic effects of the conflict may continue for months.
One example emerged Wednesday when oil major Shell (NYSE:SHEL) reduced its first-quarter gas production forecast and warned that short-term liquidity could be affected — even as trading profits from oil are expected to rise.
In its quarterly trading update, the company said working capital — a measure of short-term liquidity — is now expected to fluctuate between negative $10 billion and negative $15 billion, largely due to extreme volatility in crude prices impacting inventories.
Shell added that its financial outlook is “subject to increased uncertainty” because of the ongoing situation in the Middle East. Shares of the London-listed company fell by more than 6%.