U.S. stocks experienced their best day in two months while oil prices saw a decline on Thursday. The change came after President Donald Trump announced he would not proceed with a threat to bomb Iran. This action raised hopes for a potential agreement that could restore the global oil supply.
The S&P 500 increased by 1.8%, rebounding from previous drops that placed it back to early May levels. The Dow Jones Industrial Average surged 929 points, or 1.9%, while the Nasdaq composite saw a 2.5% rally. Stocks quickly climbed in midday trading following a statement from Trump. He shared on social media that discussions with Iran had reached the highest levels and were approved, with a signing date and venue to be announced soon.
A potential agreement to end the conflict with Iran could reopen the strategic Strait of Hormuz. This would allow oil tankers to transport crude from the Persian Gulf to global markets. Consequently, the price per barrel of benchmark U.S. crude dropped 2.6% to $87.71. Brent crude, the global standard, declined by 2.9% to $90.38, although still above its pre-war price of about $70.
Concerns had been high as tensions between the United States and Iran resulted in attacks over several days, threatening a fragile ceasefire lasting over a month. The war-related high oil prices have worsened inflation, with a report showing U.S. wholesale-level price increases exceeding economists’ predictions for May. The European Central Bank responded by becoming the first major central bank to raise interest rates to manage inflation. Although higher rates can control inflation, they also slow economic growth and decrease investment values, including stocks and cryptocurrencies.
Investments seen as costly, such as the artificial-intelligence sector, have encountered criticism for being potentially overinflated. AI stocks have caused wide fluctuations in the U.S. stock market recently, moving erratically from record highs to sudden declines. Concerns about overvaluation have led to volatile price movements, sometimes changing direction within an hour.
Before Trump’s announcement on Iran, AI stocks had already started recovering. Marvell Technology rose 11.1% despite earlier turbulent performance, including a plunge of 16.7% followed by a 9.6% rise and then consecutive 5% drops. Previously, it experienced a historic one-day surge of 32.5% after Nvidia’s CEO mentioned it could become a trillion-dollar company.
Semiconductor companies also saw solid gains, with Lam Research jumping 12.7% and KLA increasing 12.9%. Partial market recovery has been attributed to AI stocks’ upward swings, offsetting Oracle’s 8.5% drop. Although Oracle reported stronger quarterly profits than anticipated, the announcement of plans to raise $40 billion this fiscal year for AI investments, following a $48 billion raise last year, affected its stock value.
The S&P 500 climbed 127.31 points to 7,394.30. The Dow advanced 929.97 to 50,848.75, and the Nasdaq rose 640.16 to 25,809.66. In the bond market, easing oil prices led to a notable decrease in Treasury yields, with the 10-year Treasury yield dropping to 4.45% from 4.55% the previous day.
If oil prices continue to fall, the Federal Reserve may keep its main interest rate unchanged instead of increasing it as many anticipated due to high inflation and a robust U.S. job market. Following Trump’s comments, traders scaled back their expectations of a rate hike this year, using data from CME Group. The Fed could potentially resume rate cuts under its new chair, Kevin Warsh, if inflationary pressures decrease sufficiently. Smaller company stocks may significantly benefit from easier interest rates, as borrowing costs decrease, evidenced by the Russell 2000 index of small U.S. stocks increasing by 3%.
Internationally, stock indexes showed moderate rises in Europe after mixed results in Asia. London’s FTSE 100 increased by 0.5%, whereas Hong Kong’s Hang Seng dropped by 0.7%, marking two of the more significant international market movements.
AP Business Writers Matt Ott and Elaine Kurtenbach contributed to this report.