US-Iran truce eases rate hike fears, boosts stocks

The rally in stock markets is also attributed to the softening of a major market headwind. FedWatch data currently indicates a 55% implied probability of higher rates in 2026, a decrease from 70% following the May jobs report. Mark Malek, CIO at Siebert Financial, noted that the market's initial reaction includes lower oil prices, reduced inflation, and renewed risk appetite, calling the peace framework genuinely positive, especially if it helps reopen the Strait of Hormuz and ease energy pressures.

A sharp decline in oil prices has directly contributed to the decreased odds of a 2026 rate hike. Brent crude, which had reached $120 per barrel during the Iran conflict, fell to approximately $83 on Monday. Considering that energy costs are a significant input for US inflation, a moderation in oil prices could alleviate inflationary pressures and reduce the Federal Reserve's need to increase interest rates, which is generally beneficial for asset prices. Kevin Ford, a macro strategist at Convera, stated that lower energy prices ease pressure on the Federal Reserve to adopt a hawkish stance.