Oil Prices Sink, Stock Futures Rally as US and Iran Pause Attacks

U.S. stock-index futures surged on Sunday, while oil prices tumbled amidst easing tensions in the Middle East. This development followed a pause in military attacks between the United States and Iran, which boosted risk appetite across markets. Investors are now cautiously optimistic as Wall Street prepares for a Federal Reserve meeting and key earnings reports from leading technology companies in the week ahead.

The de-escalation came after U.S. President Donald Trump halted bombing campaigns late Friday, allowing diplomatic efforts to proceed, following 13 consecutive nights of U.S. strikes on Iranian targets. Iran also refrained from launching retaliatory attacks over the weekend, marking the first such pause in approximately two weeks. This raised hopes that mediation efforts could push both sides back to the interim ceasefire deal that had collapsed earlier in the month. U.S. Ambassador to the United Nations, Mike Waltz, stated that President Trump had put new attacks on hold to give “talks some space.” Stephen Innes, managing partner at SPI Asset Management, suggested that giving diplomacy room now might be an effort to prevent the “war premium” from becoming a domestic liability.

The market reaction was immediate and pronounced. West Texas Intermediate (WTI) crude futures (CL.1), the U.S. benchmark, fell more than 5% on Sunday, dropping below $85 a barrel after settling Friday at $89.31. WTI had climbed nearly 10% last week. Conversely, Dow Jones Industrial Average futures (YM00) surged approximately 230 points, or 0.5%, S&P 500 futures (ES00) rose 0.6%, and Nasdaq-100 futures (NQ00) jumped 1.2% late Sunday. Bitcoin (BTCUSD) was trading above $65,000.

This pause in hostilities eased immediate concerns over potential disruptions to oil flows through the Strait of Hormuz, which had previously caused oil prices to surge. The pullback in crude prices helped alleviate fears that another spike in energy costs could fuel inflation and complicate the Federal Reserve's policy outlook. Wall Street had concluded the previous week on a mixed note, with all three major indexes posting weekly losses—the NASDAQ Composite falling about 2.1%, the S&P 500 declining 0.6%, and the Dow Jones Industrial Average slipping 0.4%—largely due to the conflict.

The broader U.S.-Iran conflict had significantly rattled global energy markets and supply chains, leading to sharp increases in oil and gas prices. The Strait of Hormuz, a critical choke point for global oil and liquefied natural gas (LNG) supply, had faced severe restrictions during the conflict. The resumption of hostilities earlier in the month, coupled with threats from Iranian-backed Houthi rebels in Yemen to attack tankers in the Red Sea, had further driven oil prices higher. Concerns about dwindling U.S. air defense stocks and the potential for high oil prices to become a domestic political liability ahead of upcoming midterm elections may also have influenced the decision to pause strikes.

Investors are now keenly focused on the Fed's two-day policy meeting, where the central bank is widely expected to leave interest rates unchanged. However, comments from Fed Chair Kevin Warsh will be closely scrutinized for clues on the timing of future rate cuts and policymakers' assessment of inflation risks, particularly given the persistent inflation above the Fed's 2% target. Additionally, the week will bring a wave of earnings reports from major technology companies, including Apple (AAPL), which are expected to significantly impact market sentiment. While the pause in attacks offers temporary relief, geopolitical risks remain elevated, and any renewed conflict or breakdown in negotiations could quickly reverse market gains.