Wall Street jumps after US-Iran peace deal and Strait of Hormuz reopening boosts risk sentiment

US stocks rallied strongly on Thursday as investors reacted to a sudden improvement in global risk sentiment. The main trigger was news that the United States and Iran signed an interim peace accord. The agreement reportedly ends military operations across multiple fronts and reopens the Strait of Hormuz immediately.

The deal also sets a 60 day negotiation window for a more permanent settlement. Markets interpreted this as a major reduction in geopolitical risk, especially for energy supply chains.

The agreement between the US and Iran became the main focus for investors.

Reports say the memorandum of understanding was signed during a high level diplomatic meeting in Europe. It includes commitments to stop military operations and restart diplomatic negotiations for a final agreement within two months.

Iran also reaffirmed that it will not pursue nuclear weapons during the negotiation period and agreed to the structured handling of enriched materials under a joint mechanism.

One of the most important parts of the deal is the reopening of the Strait of Hormuz. This waterway is a key global energy route, and it was disrupted during the conflict. Its reopening helped ease fears of supply shortages.

Oil prices dropped as a result, with Brent crude sliding to around 78 dollars per barrel. The decline also reduced the geopolitical risk premium that had built up in recent months.

Stock markets surge as risk sentiment improves

Wall Street responded quickly to the news.

The S&P 500 rose about 1.1% to 7,500 points. The Nasdaq Composite gained 1.7% to 26,454 points. The Dow Jones Industrial Average also climbed, though at a slower pace of 0.3%.

The move came after a weak session earlier in the week when markets fell due to concerns over Federal Reserve policy.

Traders said the peace deal shifted focus away from interest rate worries and back toward growth expectations. Lower oil prices also supported optimism because they reduce inflation pressure and improve consumer spending outlooks.

Markets are also closed on Friday for the Juneteenth holiday, which added to thin trading conditions.

Federal Reserve signals rate concerns despite market optimism

Even with the strong rally, investors are still processing a more cautious message from the Federal Reserve.

The central bank recently kept interest rates unchanged at 3.50 percent to 3.75 percent. However, updated projections showed a more aggressive stance than before.

Officials now expect at least one rate hike in the coming year, with several policymakers forecasting multiple increases. This marked a shift from earlier expectations of rate cuts.

New Fed leadership under Chair Kevin Warsh also announced a broad review of central bank operations. The review includes communication strategy, balance sheet policy, inflation framework, and data usage.

The mixed signals created volatility earlier in the week, with stocks falling sharply before recovering on the peace deal news.

Energy prices ease as the Strait of Hormuz reopens

Energy markets played a central role in the rally. The reopening of the Strait of Hormuz removed immediate fears of major oil supply disruption. This route normally carries a large share of global oil and gas shipments.

As tensions eased, oil prices dropped sharply over several weeks, falling around 30% from recent highs. Analysts said this decline could reduce inflation pressure globally and support economic growth.

Lower energy costs also helped improve investor confidence in both equities and bonds.

What happens next for markets and geopolitics

The next phase depends on whether the interim agreement holds.

The deal begins a 60 day negotiation period that will determine whether a permanent agreement can be reached. Any breakdown in talks could quickly reverse the current market optimism.

For now, investors are focused on falling oil prices, rising stock indices, and reduced geopolitical risk. But the situation remains sensitive, especially given the ongoing uncertainty around Federal Reserve policy and global inflation trends.

The real test will come in the weeks ahead when diplomatic negotiations begin to face pressure from political and regional interests, and markets will be watching closely to see whether this rare moment of calm turns into lasting stability or just another short lived relief rally.