Oil prices retreated to levels seen early in the Iran war as U.S. stocks surged to a new record on Friday, following Iran’s announcement that the Strait of Hormuz is once again open for commercial tankers transporting oil from the Persian Gulf to global customers.
The S&P 500 soared 1.2%, reaching an all-time high and concluding its third consecutive week of significant gains, marking its lengthiest winning streak since Halloween. An improved oil flow is anticipated to alleviate pressure not only on gas prices but also on food and various other goods transported by vehicles.
The Dow Jones Industrial Average surged by as much as 1,100 points before settling at an 868-point gain, equivalent to a 1.8% increase. The Nasdaq composite also climbed by 1.5%.
In Canada, the S&P/TSX composite index closed with a rise of 294.06 points at 34,346.29.
Since hitting a low point in late March, the U.S. stock market has risen by over 12%, driven by optimism that the United States and Iran can avert a worst-case scenario for the global economy amidst the ongoing conflict.
The reported reopening of the Strait of Hormuz, albeit possibly temporary, signifies a clear signal of optimism. U.S. President Donald Trump hinted at a potential end to the war in a speech late Thursday, stating that it “should be ending pretty soon.”
Following Iran’s foreign affairs minister’s announcement on social media platform X that the strait is now fully open during a 10-day ceasefire in Lebanon, the price of a barrel of benchmark U.S. crude plummeted. U.S. oil fell by 9.4% to $82.59 per barrel, while Brent crude dropped by 9.1% to $90.38 per barrel.
Although oil prices remain above pre-war levels at $70, indicating some degree of caution in financial markets, the positive market reaction to the news raises questions about the movement in the Strait.
Despite the optimism, concerns persist about vessel traffic through the Strait. Carsten Brzeski, global head of macro at ING, expressed doubts about whether ships will risk passing through, highlighting potential hesitancy among insurers and shipowners. This cautious approach suggests that traffic through the Strait may gradually increase.
Companies with significant fuel expenses, such as United Airlines and cruise ship operators, saw notable stock gains following the oil price relief. United Airlines surged by 7.1%, while Royal Caribbean Group and Carnival rose by 7.3% and 7%, respectively.
The strong start to the earnings reporting season for major U.S. companies has contributed to the positive sentiment in the stock market. Notably, State Street and Fifth Third Bancorp reported better-than-expected results for the latest quarter, driving their stock prices higher.
While Netflix experienced a 9.7% decline despite exceeding profit expectations, several financial companies surpassed analyst profit forecasts, further supporting the U.S. stock market.
In international markets, European stock indexes surged following Iran’s announcement. France’s CAC 40 rose by 2.2%, and Germany’s DAX increased by 2.3%. In contrast, Asian markets closed weaker, with Japan’s Nikkei 225 and Hong Kong’s Hang Seng experiencing notable losses.
Additionally, Treasury yields decreased significantly as falling oil prices alleviated inflation concerns. The 10-year Treasury yield dropped from 4.32% to 4.24% late Thursday.