U.S. stocks opened higher Tuesday, with the Djia up 0.3%, as investors welcomed easing oil prices and signs that tensions between Washington and Tehran could cool in the coming days. The S&P 500 rose 0.5% and the Nasdaq Composite added 0.8% after markets were closed Monday for the Memorial Day holiday.
President Donald Trump said negotiations with Iran were “moving along well,” even as he warned the United States was still prepared to act militarily if the talks fell apart. That mixed message helped keep the market’s focus on the same flashpoint that rattled trading over the holiday weekend: fighting in the Strait of Hormuz, where the United States said it carried out self-defense strikes in southern Iran and the Islamic Revolutionary Guard Corps fired at a U.S. aircraft and drones.
Oil traded lower on the shift in sentiment. West Texas Intermediate crude futures fell 3.8% to $92 a barrel, while Brent crude declined 3% to $96 a barrel. The drop extended a run that helped fuel the prior week’s rally, when U.S. oil fell 8.4% for its steepest weekly decline since mid-April. Traders were also pricing in just an 8.5% chance of a Federal Reserve rate hike in July, up from 0.9% a month ago, a sign that energy prices are still shaping expectations for inflation and policy.
Markets have been sensitive to every move in crude because elevated energy costs have complicated hopes for rate cuts, and Tuesday’s retreat in oil eased that pressure at the open. The 10-year Treasury yield fell 7 basis points to 4.47%, underscoring the softer tone in bond markets as equities recovered after the holiday pause.
Semiconductors added another reason for the rally. Micron opened at a record intraday high after UBS more than tripled its price target to $1,625, a Street-high view that implies about 115% upside from Friday’s close and a market value near $1.8 trillion. That would make Micron the seventh-biggest U.S. company. The stock surged more than 10% in early trading and logged its 30th intraday all-time high of the year, while the PHLX Semiconductor Index hit a record soon after the opening bell. Marvell, AMD, Lam Research, Qualcomm and ON Semiconductor also gained.
The housing data due later this week will add another layer to the inflation picture, but for now the market is moving on geopolitics and crude. The S&P Cotality Case-Shiller 20-City Composite Home Price Index rose 0.83% in March from a year earlier, a reminder that price pressures have not vanished even as oil backs off. For investors, the next turn still depends on whether the Iran talks keep easing pressure or whether the fighting in the Strait of Hormuz flares again.
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