U.S. stocks surged to fresh records on Tuesday as investors responded positively to growing hopes for a potential end to the Iran war. The S&P 500 reached 7,519.12, up 0.61%, while the Nasdaq 100 soared 1.76% to 30,001.32, driven by a fresh rally in memory stocks. Micron led the tech surge, notching a $1 trillion valuation for the first time with shares up more than 20% after a highly bullish UBS forecast made the rounds on social media. The rally came as President Trump signaled in a Truth Social post that a deal with Iran is in sight, writing that talks are "proceeding nicely" while warning of continued military action if negotiations fall through. Secretary of State Marco Rubio also teased a potential reopening of the Strait of Hormuz on Tuesday, adding that the US and Iran could come to a deal in "a couple of days."
U.S. government bond yields held to lower levels as investors responded positively to hopes for a potential breakthrough deal to reopen the Strait of Hormuz. According to Reuters, the 10-year Treasury note yield fell 8.1 basis points to 4.491%, while the 30-year bond yield dropped 5.9 basis points to 5.023%. A closely watched part of the Treasury yield curve measuring the gap between two- and 10-year notes, viewed as an indicator of economic expectations, was at a positive 44.2 basis points. The bond market decline reflected investor relief that a potential Strait of Hormuz deal could help cool inflation pressures. Latest developments show 10-year U.S. debt yields dropped six basis points to 4.50%, while UK counterparts slid three basis points to 4.86%, as reported by Bloomberg. The rally came after global bond markets had rallied on Monday, when the U.S. market was closed for Memorial Day.
U.S. President Donald Trump on Monday signaled negotiations to end the conflict with Iran were proceeding 'nicely'. As reported by Reuters, U.S. and Iranian negotiators have been meeting in Doha to discuss a potential end to the three-month war that has constrained the global oil market, lifting fuel costs and inflation worldwide. U.S. Secretary of State Marco Rubio said on Tuesday reaching an agreement could take 'a couple of days'. However, the fragility of the ceasefire was underscored when U.S. and Israeli jets struck a number of Iranian vessels in the Strait of Hormuz hours later, highlighting the volatile nature of the truce. Tehran later accused the U.S. of a 'gross violation' of the current ceasefire after Washington conducted what it called defensive strikes in southern Iran. A two-year Treasury auction and sales of shorter-dated bills are due later Tuesday, adding to market focus on the ongoing negotiations.
According to Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, 'Markets seem to think that a deal is close at hand. As long as there's optimism around a deal, that's creating a stronger backdrop'. However, he cautioned that 'It's potentially premature. We've seen a lot of twists and turns'. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 8 basis points to 4.047%. The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities was at 2.536%, while the 10-year TIPS breakeven rate was at 2.412%, indicating the market sees inflation averaging about 2.4% annually for the next decade. The extra yield investors demand to hold 30-year bonds over five-year notes also rebounded from the lowest level since May 2025 as some of the market's more hawkish Fed expectations eased. As noted by DBS Bank, if lower oil also makes a recession less likely, longer-term yields may not fall as much, because investors can demand higher returns when growth looks steadier.
Following the latest developments in US-Iran talks, markets have pared back expectations for near-term Fed tightening, with overnight-indexed swaps now fully pricing in a rate hike by March 2027 instead of December 2026 as seen at the end of last week. According to Bloomberg, BlackRock Inc. is among those arguing the Fed has sufficient reason to cut rather than hike rates, with Navin Saigal, the firm's head of global fixed income for Asia Pacific, noting that pressure on the labor market could justify the Fed staying on hold or cutting rates. This contrasts with investors betting Warsh will prioritize the Fed's inflation-fighting credibility over Trump's push for lower rates. Fed funds futures still implied roughly a 56% chance of a rate hike this year, even if that's down from about 68% last week, as reported by Bloomberg. From Thursday to Friday, the United States is due to publish data on first-quarter economic growth, as well as April data on inflation, durable goods orders and the U.S. trade balance. According to Reuters, data released on Tuesday showed gains in the S&P Case-Shiller indices fell short of expectations, while a measure of consumer confidence came in higher than expected but edged lower.
Benchmark Brent oil prices briefly rose above $100 per barrel on Tuesday, remaining 4% lower than Friday's close, as reported by Bloomberg. The oil market dynamics reflect the ongoing tensions in the Middle East, with the latest U.S. strikes on sites in Iran and the Islamic Revolutionary Guard Corps firing on a U.S. fighter jet tempering broader market optimism over a potential deal with Tehran. Stocks pared gains and Brent crude oil climbed, while the dollar strengthened against almost all of its Group-of-10 peers. As noted by Abbas Keshvani, director of Asia macro strategy at RBC Capital Markets, 'A large part of the bond selloff has been due to heightened inflation expectations on higher energy prices,'' and progress in US-Iran talks 'could lead to further reduction in energy prices, inflation expectations, and therefore yields.' The hope has been that an end to the war will turn oil flows back on in the Persian Gulf, sending crude prices down and dispelling some of the inflationary pressure that has weighed on economic sentiment recently.
