S&P futures increased on Tuesday as traders assessed the likelihood of a potential agreement between the U.S. and Iran aimed at concluding the conflict. Futures for the Dow Jones Industrial Average increased by 234 points, representing a rise of 0.5%. S&P 500 futures gained 0.7%, and Nasdaq-100 futures advanced 1.1%. The U.S. stock markets experienced a closure on Monday in observance of the Memorial Day holiday. President Donald Trump stated on Monday that discussions with Iran aimed at concluding the conflict were “proceeding nicely.” That said, he did caution that the U.S. might take an aggressive stance should negotiations falter.

Additionally, the U.S. reported that it executed “self defense” strikes in southern Iran early Tuesday. Some of those targets included missile launch sites and Iranian boats attempting to place mines, according to U.S. Central Command spokesman Tim Hawkins. He stated that the U.S. exercised “restraint during the ongoing ceasefire” between the two countries. U.S. crude rebounded from its lows in the aftermath of the strikes, with West Texas Intermediate futures for July reflecting a 4% decline. Brent, meanwhile, experienced an increase during the day, reaching $98.27 per barrel. “The consensus view still assumes there will be some type of a détente formally reached within the next few days between Washington and Tehran, which means the real question is how much of this is already priced in?,” wrote Adam Crisafulli.

The S&P 500 experienced a 0.9% increase last week, marking its most extended weekly winning streak since late 2023. The Dow climbed 2.1%, marking its third weekly gain in four weeks. The Nasdaq experienced an increase of 0.5% last week, marking its seventh rise in the past eight weeks. “There is no doubt that fundamentals are at least partially responsible for the market rally,” wrote Adam Parker. “With earnings projected to grow 23% this year, and 16% next year, a credible argument can be made that despite the increasing projections for earnings and strong earnings growth, the price-to-forward earnings has been modestly contracting.”

A decline in oil prices also bolstered equities last week. U.S. crude experienced a decline of 8.4%, representing its most significant weekly drop since April 17. However, with crude still trading significantly above the levels observed earlier in the year – and price pressures persisting at elevated levels – investor expectations for a more accommodative Federal Reserve policy have been moderated. Traders are currently assigning an 8.5% probability to a rate hike in July, a notable increase from the 0.9% probability observed a month prior, as indicated by the CME Group’s FedWatch tool.