Powell's Remarks Lead to a Rise in Stocks and a Fall in U.S. Yields

Oil prices plummeted while U.S. stock futures climbed after former President Donald Trump announced a tentative ceasefire agreement between Israel and Iran. This raised investor hopes that the recent escalation in the Middle East may be easing, potentially reducing risks to global energy markets.

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West Texas Intermediate (WTI) crude dropped as much as 5% following Trump’s comments on Truth Social. The former president’s statement came shortly after Iran launched missiles at a U.S. military base in Qatar—a retaliatory move that was widely viewed as symbolic. Because the attack did not inflict serious damage or provoke a larger military response, it helped calm market fears, pushing the S&P 500 index up by 1% on Monday and dragging crude oil prices below the $70 mark.

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In early Tuesday trading, futures on the S&P 500 rose 0.4%, and equity contracts in Asia, including Tokyo, Hong Kong, and Sydney, also indicated gains. Meanwhile, the U.S. dollar weakened slightly against major global currencies.

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Trump, who had recently ordered U.S. airstrikes on Iran’s nuclear infrastructure, said the ceasefire agreement had been accepted by both sides. However, there were no immediate confirmations or statements from either the Iranian or Israeli governments.

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Still, Trump expressed optimism about de-escalation, characterizing Iran’s missile response as “very weak” and suggesting it had been signaled well in advance by Tehran.

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Earlier Monday, Iran had fired missiles at the American base in Qatar, claiming it was a proportional response to the U.S. bombing of three nuclear sites over the weekend. Qatar reported that the missiles were intercepted and that personnel at the base had been evacuated beforehand, further minimizing the impact.

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Alongside the movement in energy markets, U.S. Treasury yields declined, reflecting investor confidence that inflation risks linked to the conflict might not materialize. A Federal Reserve official also hinted that interest rates could be reduced as early as July, providing further support for the bond market.

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Geopolitical tensions in the Middle East were not the only concerns in Asia. China took steps that appeared aimed at stabilizing its relationship with the United States, announcing tighter controls on two chemicals commonly used in the production of fentanyl. The move was interpreted as a goodwill gesture that could reinforce the fragile U.S.-China trade truce.

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However, Beijing voiced opposition to the U.S. strike on Iran’s nuclear facilities and reaffirmed its willingness to contribute to global diplomatic efforts aimed at restoring peace in the Middle East.

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Despite the hostilities, there have been no reported disruptions in oil supply from the region, including shipments through the crucial Strait of Hormuz. In fact, data suggests Iranian crude exports may have increased since Israel began its offensive earlier in the month.

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Michael Bailey of FBB Capital Partners remarked that Iran’s measured response might be a turning point. "Today’s response from Iran appears manageable and could even serve as a clearing event," he said. "Falling oil prices are acting as a pressure release for market stress that accumulated over the weekend and are giving room for a continued bullish narrative of steady global growth."

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Monday’s trading highlighted the market’s sensitivity, with oil prices swinging wildly within a $10-per-barrel range—initially surging over 6% before reversing into negative territory. This volatility underscores how critical developments in the Middle East are to energy traders and the broader financial system.

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Short-Term Jitters, Long-Term Stability?

While the current Middle East crisis is dominating headlines, some analysts believe the resulting market selloffs may be brief. Strategists at Morgan Stanley noted that historically, market pullbacks triggered by geopolitical shocks tend to be short-lived.

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“Most geopolitical-driven selloffs are modest and temporary,” wrote Morgan Stanley's Michael Wilson and his team. “The direction of oil prices will largely dictate whether market volatility continues.”

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Their analysis found that following past geopolitical events, U.S. stocks typically rebound: the S&P 500 has gained an average of 2% after one month, 3% after three months, and 9% after twelve months.

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Bond investors, meanwhile, are closely monitoring geopolitical tensions for signs of how they might influence the Federal Reserve’s policy outlook. At the Fed’s most recent meeting, officials projected two rate cuts in 2025, and the current developments could factor into the timing of those moves.

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Powell Heads to Capitol Hill

Fed Chair Jerome Powell will have an opportunity to clarify the central bank’s stance this week as he appears before lawmakers. On Tuesday, he will testify before the House Financial Services Committee, followed by an appearance Wednesday before the Senate Banking Committee.

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Despite former President Trump’s repeated calls for lower interest rates, Powell and most of his colleagues have signaled that they intend to hold rates steady, at least through September, barring any major changes in economic conditions. His testimony may offer further insight into whether the recent geopolitical unrest or other factors could accelerate the Fed’s timeline for rate cuts.

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