U.S. stock futures moved sharply higher on Monday after Washington and Tehran announced an interim peace agreement, raising hopes that a conflict which has disrupted global markets for more than three months could soon come to an end.
While important aspects of the agreement have yet to be fully disclosed, investors reacted positively to news that the Strait of Hormuz is expected to reopen later this week. The development weighed on oil prices, boosted gold and pressured the U.S. dollar as markets also evaluated the potential impact on upcoming Federal Reserve policy decisions.
Wall Street Futures Extend Gains
By 03:03 ET (07:03 GMT), Dow futures had advanced 492 points, or 1.0%, while S&P 500 futures rose 89 points, or 1.2%. Nasdaq 100 futures led the gains, climbing 590 points, or 1.9%.
According to analysts at Deutsche Bank, “The fizz in staying in markets this morning as after 107 days and a seemingly endless number of false dawns, we finally have a deal between the U.S. and Iran to end the war and open the Strait of Hormuz.”
The positive tone followed a strong finish to the previous week, supported by growing expectations of a diplomatic breakthrough and continued enthusiasm surrounding SpaceX (NASDAQ:SPCX) after its record-breaking stock market debut.
Shares in SpaceX remained above their $135 IPO price, valuing the company at more than $2 trillion and placing it among the largest publicly traded businesses in the United States. Other space-sector names, including Rocket Lab (NASDAQ:RKLB) and Planet Labs (NYSE:PL), also benefited from renewed investor interest.
Details of the Agreement Still Emerging
Attention quickly shifted to the peace agreement itself, which both the United States and Iran confirmed had been reached and is expected to be formally signed in Switzerland on Friday.
Although neither side has published a complete outline of the terms, media reports indicate the framework may include a 60-day period dedicated to negotiations over Iran’s nuclear programme.
President Donald Trump told the Wall Street Journal that Iran had agreed not to pursue nuclear weapons under the arrangement, although that commitment was not referenced in his social media statements on Sunday.
Pakistani Prime Minister Shehbaz Sharif, whose government played a mediating role throughout the conflict, said the two countries had “declared the immediate and permanent termination of military operations on all fronts.”
The announcement came despite concerns that the process could be derailed after Israeli strikes targeting Hezbollah positions in Lebanon prompted criticism from Trump directed at Israeli Prime Minister Benjamin Netanyahu.
Oil Prices Fall on Hormuz Reopening Plans
One of the most immediate market reactions was seen in energy markets after Trump stated that the Strait of Hormuz would reopen on Friday following the completion of mine-clearing operations.
The prospect of restoring traffic through the strategic waterway, which has faced severe disruption during the conflict, triggered another sharp decline in oil prices.
By 08:28 ET, Brent crude had fallen 5.1% to $82.84 per barrel, while U.S. West Texas Intermediate crude dropped 5.8% to $79.93 per barrel.
Trump also indicated that the longstanding U.S. naval blockade of Iranian ports would be lifted alongside the reopening of Hormuz, potentially restoring a critical route through which roughly one-fifth of global oil and liquefied natural gas shipments moved before the conflict began.
Despite the sharp sell-off, some analysts questioned whether oil prices would return to pre-war levels.
“Financial markets are once again excited about a potential Middle East peace deal and the possible resumption of energy flows out of the Gulf. Whether that delivers much lower energy prices is highly questionable,” analysts at ING said in a note.
Gold Extends Rally as Dollar Weakens
Gold prices continued to advance, supported by a weaker U.S. dollar and shifting expectations around inflation and interest rates.
Spot gold rose 2.3% to $4,315.44 per ounce, reaching its highest level since 9 June and extending gains for a third consecutive session. Gold futures also gained 2.3% to $4,336.17 per ounce.
The dollar weakened to a 10-day low against major currencies, reducing its appeal as a safe-haven asset following the easing of geopolitical tensions.
A softer dollar typically supports demand for gold by making the metal more affordable for international buyers.
Focus Turns to Federal Reserve Decision
Investors are now assessing how the changing geopolitical backdrop could influence the Federal Reserve’s interest-rate decision later this week.
Markets broadly expect policymakers to leave rates unchanged on Wednesday, although expectations for future policy moves remain uncertain.
Recent inflation data has prompted investors to scale back expectations for rate cuts, while some now see a possibility that borrowing costs could remain elevated for longer.
Analysts at Vital Knowledge said, “[I]t’s still very likely that the easing bias will be removed from the FOMC statement.”
However, they noted that Fed Chair Kevin Warsh “could put his thumb on the scale during the [post-decision] press conference and tip things in a dovish direction by reiterating” that several policymakers have previously suggested rate cuts could become appropriate if the Iran conflict were resolved.
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