U.S. stocks rallied Monday as investor confidence returned, buoyed by optimism that the escalating hostilities between Israel and Iran may remain contained. The S&P 500 rose 0.9% to close at 6,033.11, bolstered by a standout performance from Estée Lauder, which surged 10.78%. The Nasdaq climbed 1.52% to 19,701.21, and the Dow Jones added 0.8%, closing at 42,515.09, supported in part by gains across the banking sector.
The rebound in sentiment extended across global markets. South Korea‘s Kospi advanced 1.8%, and Japan‘s Nikkei 225 climbed 1.3%, marking some of the day’s strongest performances. Chinese markets also ticked higher after new data showed a rise in consumer spending in May, despite headwinds in industrial growth and investment. Stocks gained 0.7% in Hong Kong and 0.3% in Shanghai.
Energy markets painted a contrasting picture. Despite continuing military exchanges between Israel and Iran, oil prices slipped after spiking late last week. Brent crude, the global benchmark, dropped 2% to $72.78 per barrel, while West Texas Intermediate fell 2.4% to $71.23. Analysts pointed to easing concerns about disruptions to global oil flows, especially with no direct impact on the Strait of Hormuz, a critical shipping lane.
Hopes for diplomacy surfaced as Iran’s foreign minister hinted at potential U.S. engagement following reports of high-level communication between Washington and Israeli leadership. Nonetheless, the conflict showed no signs of abating, with missile attacks ongoing. An Israeli airstrike reportedly disrupted Iranian state media temporarily, while Iran’s recent missile barrage into Israel claimed 11 lives.
Back on Wall Street, positive investor sentiment was also reflected in corporate news. Sage Therapeutics soared 35.4% after agreeing to a potential $795 million buyout by Supernus Pharmaceuticals. U.S. Steel rose 5.1% following a U.S. executive order enabling Japanese firm Nippon Steel to invest, potentially giving the government oversight over its operations.
Those gains helped counter losses in the defense sector. Shares of Lockheed Martin and Northrop Grumman both declined nearly 4%, pulling back from Friday’s surge driven by conflict-related demand expectations. Gold also reversed course, dropping 1.4% to $3,403 per ounce after a brief flight to safety the previous trading day.
Investor attention is now shifting to the Federal Reserve’s upcoming policy meeting. While markets broadly expect interest rates to remain unchanged, new forecasts from Fed officials could sway sentiment. Analysts at Bank of America suggest only one rate cut might be penciled in for the year—fewer than the two anticipated by investors.
Inflation remains within the Fed’s 2% target, though uncertainty around U.S. trade policy, including tariffs imposed by President Trump, continues to cast a shadow. With the G7 summit underway and additional economic data such as May retail sales on the horizon, markets appear cautiously optimistic—though far from complacent.
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