S&P 500, Dow hit records as oil slides 5% on Iran deal hopes

U.S. stocks closed at record highs Wednesday as oil prices tumbled to six-week lows on signs the U.S. and Iran may be nearing a deal to end their conflict.

The S&P 500 rose 0.02% to 7,520.36 and the Dow hit a record 50,644.28 as oil slid to six-week lows on U.S.-Iran deal prospects.

"Talks with Iran have made some progress, and we're going to give it every chance to succeed," Secretary of State Marco Rubio said at a White House Cabinet meeting Wednesday. President Donald Trump said he will not allow Iran to control the Strait of Hormuz as part of any agreement, adding that "the strait is going to be open to everybody."

Consumer Discretionary led the S&P 500's 11 sectors with a 1.9% gain, while Energy lagged with a 1.5% decline as crude prices collapsed. West Texas Intermediate futures tumbled 5% to $88.68 a barrel, and Brent crude fell 5% to $94.29 — both at their lowest levels since mid-April. The Nasdaq Composite added 0.1% to close at a record 26,674.73.

The retreat in oil prices removes a key headwind for equities, particularly consumer-facing sectors that had been pressured by rising fuel costs. But traders face a fresh test Thursday when the Bureau of Economic Analysis releases April personal consumption expenditures data, with economists expecting the Fed's preferred inflation gauge to show a 3.9% year-over-year gain — the highest since May 2023.

Oil Rout Spurs Rotation as Energy Lags

The 5% drop in crude followed Iranian state television's report that Tehran had committed to restore commercial traffic through the Strait of Hormuz to prewar levels within one month of an agreement with the U.S. The White House called the report of a memorandum of understanding "a complete fabrication," but the market interpreted the back-and-forth as progress toward a ceasefire.

Even if a deal is reached immediately, it will take at least four months to ramp oil flows to 80% of normal levels, according to Sultan Ahmed al-Jaber, head of Abu Dhabi National Oil Co. Full normalization may not occur until the first or second quarter of 2027, he said. Middle Eastern producers are already hedging against prolonged disruption: Saudi Aramco and ADNOC are increasing exports through alternative routes, and the UAE's pipeline project bypassing the Strait of Hormuz is roughly 50% complete and ahead of schedule.

The U.S. 10-year Treasury yield edged lower as oil's decline eased inflation expectations, while the dollar index held steady. Gold rose 0.3% as investors balanced geopolitical uncertainty with lower crude prices.

PCE Data Tests Rally as Fed Holds Firm

Thursday's PCE report is expected to show headline inflation rose 0.5% in April from the prior month, with core inflation — excluding food and energy — gaining 0.3%. The year-over-year core rate is forecast at 3.3%, up slightly from March's 3.2% reading.

The data will likely reinforce the Federal Reserve's patient stance. Fed Governor Christopher Waller said Friday that "inflation is not headed in the right direction" and that the Fed's June statement should make clear a rate cut is no more likely than an increase. The target range for the federal funds rate stands at 3.5% to 3.75%, and the vast majority of officials are expected to hold steady at the June 16-17 meeting.

Salesforce reported adjusted earnings of $3.88 a share on revenue of $11.13 billion after the bell, beating analyst estimates. But shares fell 2.1% in extended trading after the company's current remaining performance obligations grew 14% to $33.6 billion, missing expectations for the key forward-looking metric.

This article is for informational purposes only and does not constitute investment advice.