U.S. stock futures traded higher on Friday, indicating that equities could extend the strong gains recorded in the previous session as investors continued to focus on signs of a potential resolution to the conflict involving Iran.
Market sentiment improved after President Donald Trump again suggested that an agreement between Washington and Tehran may be close.
Reports Suggest Progress Toward a Formal Agreement
According to a report from Axios, a proposed memorandum of understanding between the United States and Iran would include the immediate reopening of the Strait of Hormuz without transit fees and sanctions relief for Iran tied to compliance with agreed conditions.
Axios cited both a U.S. official and a diplomat from one of the mediating nations. The diplomat stated that the two sides “have agreed on the text of a deal,” while noting that final approval is still required.
The agreement would also reportedly extend the existing ceasefire by 60 days, including in Lebanon, while allowing further nuclear negotiations to take place during that period.
A separate Bloomberg report suggested that the agreement could be signed on the sidelines of next week’s Group of Seven summit.
Investors Remain Receptive to Trump’s Optimism
Market participants appeared willing to embrace the latest positive headlines despite previous false starts in negotiations.
“The maxim ‘once bitten, twice shy,’ isn’t being applied by the market when it comes to Donald Trump’s pronouncements, as his latest of several suggestions a deal is close has helped to drive stocks higher once more,” said Dan Coatsworth, head of markets at AJ Bell.
He added, “Whether momentum can be sustained depends on positive noises about a resolution translating into something more solid in the coming days.”
Stocks Finished Strongly Higher on Thursday
After trading in a relatively directionless fashion for much of Thursday’s session, U.S. equities rallied sharply during afternoon trading.
The major indices recovered from the weakness seen the previous day and finished with substantial gains despite pulling back slightly from intraday highs.
The Nasdaq jumped 640.16 points, or 2.5%, to close at 25,809.66. The Dow Jones Industrial Average advanced 929.97 points, or 1.9%, to 50,848.75, while the S&P 500 climbed 127.31 points, or 1.8%, to 7,394.30.
Oil Prices Sink After Trump Reverses Course
The rally accelerated after oil prices dropped sharply following Trump’s decision to cancel previously announced military strikes against Iran.
In a post on Truth Social, Trump said the move was “based on the fact that discussions with the Islamic Republic of Iran have been brought to the highest level of Iranian leadership and approved.”
The announcement marked a dramatic shift from earlier comments in which Trump had warned that the United States would strike Iran “very hard tonight” and stated that he intended to take control of the country’s oil and gas markets “at some point in the not too distant future.”
Bargain Hunting Adds Momentum
Investor demand was also supported by bargain hunting after the previous session’s weakness had pushed both the Nasdaq and the S&P 500 to their lowest closing levels in a month.
The rebound encouraged traders to step back into risk assets as broader sentiment improved.
Inflation Data Takes a Back Seat
Markets largely ignored stronger-than-expected producer inflation figures released by the U.S. Labor Department.
The Producer Price Index for final demand rose 1.1% in May, matching an upwardly revised increase recorded in April.
Economists had forecast a 0.7% rise following the previously reported 1.4% gain in April.
Annual producer price inflation accelerated to 6.5% from 5.7%, marking the fastest pace since November 2022.
Despite the data, investors remained focused on geopolitical developments and falling energy prices.
Semiconductor Stocks Lead the Advance
Technology shares were among the strongest performers, led by semiconductor companies.
The Philadelphia Semiconductor Index surged 7.9% during the session.
Intel (NASDAQ:INTC) shares soared 9.2% after Bank of America upgraded the stock to Buy from Underperform.
Airlines Benefit From Lower Fuel Costs
The decline in crude oil prices also boosted airline stocks, as investors anticipated lower fuel expenses across the sector.
The NYSE Arca Airline Index jumped 7.5%, making it one of the strongest-performing industry groups of the day.
Sector Performance Remains Mixed
Networking companies, gold-related stocks and computer hardware manufacturers also posted notable gains.
However, not all sectors participated in the rally.
Energy stocks came under pressure due to weaker oil prices, while software shares also lagged the broader market despite the overall positive tone.