Wall Street soars as traders bet on potential war off-ramp

Wall Street ended sharply higher on Tuesday, lifted by speculation about a potential de-escalation in the Middle East conflict that has sent oil prices soaring and fuelled fears of global inflation in recent weeks.

All three major US indexes rallied after the Wall Street Journal reported on Monday that US President Donald Trump told aides he was willing to end the military campaign against Iran, even if the Strait of Hormuz remained largely closed.

US Defence Secretary Pete Hegseth said the next few days in the Iran war would be decisive and warned Tehran that the conflict would intensify if it did not make a deal.

The month-long war has left the S&P 500 and the Dow on track for their deepest quarterly declines since 2022 as investors worry that a wave of higher fuel costs could hurt demand for goods and services, while forcing the US Federal Reserve to raise interest rates to contain inflation.

"What you're seeing in capital markets today is speculation around an earlier off-ramp, or a cessation of hostilities," said Bill Northey, senior investment director at US Bank Wealth Management, in Billings, Montana.

"Details are light, but the capital markets are looking for any indication that there is an opportunity for a more normal flow of energy through the Strait of Hormuz."

The US stock market's most valuable companies made big gains, with Nvidia, Alphabet, Meta Platforms and Amazon all higher.

The S&P 500 gained 184.8 points, or 2.91 per cent, to end at 6,528.81 points, while the Nasdaq Composite gained 795.99 points, or 3.83 per cent, to 21,590.63. The Dow Jones Industrial Average rose 1,125.37 points, or 2.49 per cent, to 46,341.51.

Last week, the Dow and the Nasdaq ended 10 per cent below their record-high closes, confirming they were both in corrections.

U.S. job openings fell more than expected in February and hiring dropped to the lowest level in nearly six years, government data showed.

The oil spike stemming from the Iran war has revived inflation worries, and money market traders think the Fed is more likely to raise interest rates by year-end than lower them, according to CME Group's FedWatch Tool.