Stock futures extend rally as oil surges 2% on U.S.-Iran strikes

U.S. equity futures extended May's record-setting rally Monday even as crude prices jumped more than 2%, after the U.S. and Iran traded a fresh round of military strikes over the weekend.

S&P 500 futures rose Monday as oil surged above $89 a barrel after the U.S. and Iran exchanged fresh military strikes.

West Texas Intermediate crude climbed $2.37, or 2.7%, to $89.73 a barrel by 10:17 a.m. GMT, while Brent advanced $2.07, or 2.3%, to $93.19, according to Reuters data. The gains reversed Friday's declines of 1.7% for WTI and 1.8% for Brent, which came on expectations that the U.S. and Iran had reached a ceasefire agreement.

The U.S. struck Iranian military sites over the weekend, and Tehran retaliated with an attack on an air base, according to reports. The exchange came amid ongoing negotiations between the two countries and follows Israeli troop movements deeper into southern Lebanon against the Iranian-backed Hezbollah militant group, despite a ceasefire announced more than six weeks ago. The Strait of Hormuz, through which about a fifth of the world's oil passes, remains under tension, though infrastructure has stayed intact so far.

Oil Premium Returns as Geopolitical Risk Resurfaces

The jump in crude prices erased the relief rally from Friday, when both benchmarks fell more than 1.5% on hopes of a diplomatic resolution. The renewed hostilities suggest a ceasefire remains elusive, keeping the geopolitical risk premium embedded in oil prices. Brent has traded above $90 a barrel for most of the past month, supported by supply concerns from the Middle East and steady demand from Asia.

The divergence between equities and oil highlights a key question for investors heading into June: whether the geopolitical risk premium in crude will eventually spill over into broader equity valuations through higher input costs and inflation expectations. Energy stocks are likely to benefit from higher crude prices, but sectors with high fuel costs — airlines, transportation, and industrials — could face margin pressure if oil sustains its gains above $90.

The S&P 500 closed May at a record, its fifth consecutive monthly gain, as resilient corporate earnings and AI-driven optimism offset persistent inflation concerns. The benchmark index has rallied more than 10% this year, supported by strong consumer spending and a resilient labor market. The next major test for risk appetite comes later this week with the release of ISM manufacturing data and the monthly jobs report.

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