US stock markets rose sharply on Wednesday morning. At 9:30 AM ET, the Dow Jones Industrial Average rose more than 300 points, while the S&P 500 and Nasdaq Composite both gained around 1%. The development took place amid hopes that tensions in the Middle East may reduce as the US sent a 15-point plan to Iran to end the conflict.
The plan was reportedly sent through Pakistan. Earlier, Donald Trump said that the US is “in negotiations right now” with Iran and that Tehran is “talking sense.”
Even though Iran’s state media said it will not accept a US-led ceasefire, investors are still hopeful that some kind of agreement could happen. This hope of a “ceasefire” is now making markets more positive.
Falling oil prices
Oil prices dropped sharply today. US crude oil fell about 4% and Brent crude dropped around 5%. Lower oil prices are usually good for stock markets because they reduce costs for companies and ease inflation worries.
Lower interest rates expectations
Treasury yields also fell along with oil prices. When yields go down, it supports stock markets because borrowing becomes cheaper and future earnings look more attractive.
Michael Kantrowitz from Piper Sandler explained the situation clearly to CNBC. He said, “We continue to see this as just an oil-driven, one-variable market,” Michael Kantrowitz, chief investment strategist at Piper Sandler. He added, “Oil and interest rates are driving the equity market. And for now, I think markets are priced appropriately for where conditions are, and we’ll continue to move and react as conditions evolve.”
Kantrowitz added, “I’m less concerned about the economy. I think the US economy can certainly handle $90, $100 oil. I’m a little more concerned about interest rates and the fear of persistent inflation weighing on equity multiples.”
Market reacting to daily news
Markets have been very volatile this week because news is changing every day. On Monday, stocks went up after Trump said talks were going well. On Tuesday, markets fell after Iran denied direct talks.
Aleks Spencer from Bogart Wealth told CNBC, “Markets are seeing some sort of a pathway for de-escalation in the war. How soon could this materialize, the peace part of this situation? Are these really credible thoughts happening or is it just kind of the headline noise that we’ve been seeing back and forth?” He added, “Every day seems to be a different discussion.”
Uncertainty still remains
Even with the market going up, there are still many doubts. It is not clear if Iran will agree to the deal or what conditions will be accepted.
JPMorgan’s trading desk stated as reported by Reuters, “While there remain questions over who in Iran can curtail military activities as well as what will satisfy Israel interests, the market seems to be expressing a view that it wants to bounce higher from here.” They also said, “Also, it is unclear that Iran would drop previous requests, including security guarantees against future aggression and reparation/compensation for losses incurred during this conflict.”
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.