US equities surged to fresh record levels on renewed optimism that the conflict in the Middle East could move toward a resolution.
The S&P 500 rose 0.5%, edging above its previous late-January peak, while the Nasdaq 100 advanced 0.7% as technology stocks continued to lead gains.
Technology shares have played a central role in the market’s recovery after underperforming earlier in the year.
Peace hopes drive risk appetite
Investor sentiment has been buoyed by expectations that negotiations between the United States and Iran could resume.
US President Donald Trump said talks could soon restart and lead to a deal, even after recent discussions in Islamabad failed to produce an agreement.
As per various media reports, both sides are considering extending a ceasefire set to expire on Tuesday by an additional two weeks to allow more time for negotiations.
The prospect of renewed diplomacy has led markets to unwind much of the risk premium that had built up since the conflict began in late February.
Markets recover from war-driven selloff
The rebound marks a significant turnaround from last month’s volatility.
The S&P 500 had fallen as much as 9% following the outbreak of hostilities on February 28, narrowly avoiding a formal correction.
Meanwhile, the Nasdaq Composite and the Dow Jones Industrial Average both entered correction territory, defined as declines of at least 10% from recent highs.
The sharp selloff had been driven by a surge in oil prices and renewed concerns about inflation and the trajectory of US interest rates.
However, the recent rally suggests investors are increasingly confident that the economic fallout may be contained, particularly if diplomatic progress continues.
Earnings expectations add support
In addition to geopolitical developments, markets have drawn strength from expectations of a solid corporate earnings season.
Executives at major banks have indicated that the US consumer remains resilient despite the energy shock, while dealmaking and initial public offering pipelines remain active.
Analysts now expect companies in the S&P 500 to report combined earnings of $605.1 billion for the first quarter, up from an earlier forecast of $598.7 billion at the start of the period, according to data compiled by LSEG.
Several brokerages have also characterised the earlier selloff as a buying opportunity, with lower valuations attracting renewed investor interest.
Commodities and bonds reflect easing tensions
In commodity markets, Brent crude prices were up less than 1% at around $95 per barrel, even as the US maintained a naval blockade of the Strait of Hormuz.
The relative stability in oil prices suggests markets are cautiously optimistic about supply risks.
US Treasuries weakened, with the two-year yield rising to 3.77%, while the dollar remained largely unchanged.
Gold prices declined toward $4,800 per ounce, indicating reduced demand for safe-haven assets.
Risks still linger
Despite the rally, uncertainty surrounding the conflict persists.
Around a fifth of global crude supply remains affected, and any escalation could quickly reverse recent gains.
Even if geopolitical risks subside, investors remain mindful of other underlying concerns, including the potential economic disruption linked to artificial intelligence and its impact on corporate earnings and labour markets.
For now, however, markets appear focused on the prospect of de-escalation, with equities climbing to record levels as investors bet that the worst of the geopolitical shock may be passing.
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