Oil prices returned to levels seen early in the Iran war as U.S. stocks surged to a new high on Friday following Iran’s announcement that the Strait of Hormuz is open for commercial tankers transporting oil from the Persian Gulf. The S&P 500 achieved a 1.2% increase, marking its third consecutive week of significant gains, the longest streak since Halloween. A smoother flow of oil is expected to alleviate pricing pressures not only on gasoline but also on various consumer goods dependent on vehicle transport.
The Dow Jones Industrial Average initially soared by 1,100 points, eventually settling at an 868-point gain, a 1.8% increase. The Nasdaq Composite also climbed by 1.5%. The Canadian S&P/TSX Composite Index closed up by 294.06 points at 34,346.29.
Since hitting a low point in late March, the U.S. stock market has surged over 12%, fueled by hopes of a favorable outcome in the standoff between the United States and Iran. President Donald Trump expressed optimism about a potential resolution, indicating that the war may conclude soon.
The announcement by Iran’s foreign affairs minister, Abbas Araghchi, on social media platform X declaring the complete opening of the Strait of Hormuz during a 10-day ceasefire in Lebanon led to a sharp drop in U.S. crude prices. U.S. oil prices plummeted by 9.4% to $82.59 per barrel, while Brent crude fell by 9.1% to $90.38 per barrel.
Although oil prices remain above pre-war levels, indicating cautious sentiment in financial markets, the reopening of the Strait of Hormuz has brought a sense of optimism to investors. Market volatility has been prevalent throughout the conflict, with fluctuations in stock, bond, and oil prices in response to changing developments.
While the news has elicited a positive market response, concerns persist regarding vessel movement in the Strait. Carsten Brzeski, global head of macro at ING, highlighted the potential hesitancy among insurers and shipowners to navigate the route, suggesting that traffic through the Strait may gradually resume.
Companies heavily reliant on fuel witnessed significant stock gains following the oil price relief. United Airlines surged by 7.1%, with cruise ship operators like Royal Caribbean Group and Carnival also experiencing notable increases. The favorable start to the earnings reporting season for major U.S. companies further bolstered market sentiment.
International stock markets, particularly in Europe, saw significant gains after Iran’s announcement, with France’s CAC 40 and Germany’s DAX both posting notable increases. In Asia, however, indexes closed weaker, with Japan’s Nikkei 225 and Hong Kong’s Hang Seng experiencing losses.
The bond market saw Treasury yields decline as lower oil prices alleviated inflation concerns, with the 10-year Treasury yield dropping to 4.24% from 4.32% late Thursday.