Wall Street’s main indices climbed, with both the S&P 500 and the Nasdaq now back at levels from before the US and Israel began bombing Iran on Feb 28.
European equity markets also rose, although London advanced only 0.3% as the retreat in oil prices from US$100 a barrel weighed on the shares of energy majors BP and Shell.
Asia’s leading stock markets closed with sizeable gains, while the dollar, seen as a haven in times of market turmoil, dropped against its main rivals.
Investors greeted US-mediated talks in Washington that set a plan for direct negotiations between Israel and Lebanon.
The United States is pressing for a halt to the conflict between Israel and Hezbollah, fearing it could derail the two-week ceasefire in Washington’s war with Iran after talks with Tehran in Pakistan failed to achieve a breakthrough.
The progress on Lebanon-Israel helped US equities extend Monday’s rise after President Donald Trump said he had been contacted by Iran officials eager for a deal.
Investors are “pricing in victory,” said analyst David Morrison at Trade Nation.
He said many believe the end of the conflict with Iran is a question of days, weeks or months rather than years.
“Nobody wants to be under-exposed to risk assets, let alone be short, should the war suddenly conclude, or even if the Strait of Hormuz was unblocked,” Morrison said.
But Tom Cahill, chief investment officer at Ventura Wealth Management, said the market is “overreacting” in rising so much.
“There are still a lot of question marks as to whether a true agreement is to be had between the United States and Iran,” said Cahill, who also worries that companies will cite the war as a factor in lowering their earnings forecasts.
Surging oil prices are weighing on demand.
The International Energy Agency warned that demand for crude in the second quarter this year would likely see the biggest slump since the Covid pandemic slammed the global economy in 2020.
Surging prices will force many countries and industries to curb oil use, and “demand destruction will spread as scarcity and higher prices persist,” the agency said in its monthly report.
Large banks JPMorgan Chase, Citigroup and Wells Fargo all reported higher quarterly profits, pointing to continued resilience among US consumers despite increased geopolitical uncertainty.
But of the three large US lenders, only Citigroup pushed higher.
French luxury conglomerate LVMH reported Monday that sales fell six percent in the first three months of the year, saying the war in the Middle East depressed business in the region.
Its shares spent most of the day in the red, but finished the day with a small gain.