The Israel-Iran ceasefire agreement drives a broad rally in U.S. stocks

On June 23 local time, U.S. President Trump announced that Israel and Iran had reached a comprehensive ceasefire agreement, ending the 12-day military conflict. The news quickly reversed market risk aversion, pushing the three major U.S. stock indexes up by more than 1%. The Nasdaq 100 Index even broke through the 19,630-point mark, hitting an all-time high.

The cooling of geopolitical risks was directly reflected in the commodity market: WTI crude oil futures settled 7.22% lower at $68.51 per barrel, and Brent crude oil futures fell 7.18% to $71.48 per barrel, marking the largest single-day decline since August 2022. Energy stocks became a hard-hit area, with giants like ExxonMobil and Chevron falling by more than 3%, while aviation and transportation sectors benefiting from the oil price drop performed strongly—Delta Air Lines and FedEx rose by over 2%.

Dovish remarks from Federal Reserve officials provided a dual boost to the stock rally. Bowman, Vice Chair for Supervision of the Fed, made it clear that as long as inflation pressures remain "controllable," he would support the earliest rate cut in July. Chicago Fed President Goolsbee pointed out that the impact of tariffs on the economy was smaller than expected, hinting at room for policy adjustment. Market expectations for rate cuts heated up further, with federal funds rate futures showing the probability of a September rate cut rising to 90%.

This expectation was validated in the Treasury market: the yield on the 2-year Treasury auction on June 24 fell to 3.96%, with a bid-to-cover ratio of 2.57 times; the 5-year Treasury auction on June 25 had a yield of 4.07%, with a bid-to-cover ratio of 2.39 times, indicating investors' bets on a low-interest-rate environment. Meanwhile, the 10-year Treasury yield dropped 4 basis points to 4.34%, reflecting market optimism about the economic outlook.

Robust macroeconomic data also supported rate cut expectations. The U.S. added 139,000 nonfarm jobs in May, the unemployment rate remained at 4.2%, and average hourly earnings grew 3.9% year on year. The May CPI rose 2.4% year on year, and core CPI increased 2.8% year on year—both below market expectations, indicating sustained easing of inflation pressures.

The technology sector became the core driver pushing the Nasdaq 100 to new highs. NVIDIA soared 6.2% on the day, with its market value exceeding $1.5 trillion, benefiting from the continuous expansion of AI chip demand. The "Magnificent Seven"—including Apple, Microsoft, Meta, and Tesla—all rose by more than 2%, driving the Nasdaq 100 Index ETF (159501) to see four consecutive days of net inflows, accumulating $146 million.

This rally has solid fundamental support: tech companies' investments in AI, cloud computing, and other fields continue to translate into revenue growth. For example, Microsoft's Azure cloud service revenue increased 28% year on year, and NVIDIA's data center business revenue is expected to grow 45% in fiscal 2025. Meanwhile, the low-interest-rate environment has reduced financing costs for tech firms and enhanced the discounted value of future cash flows, further boosting valuations.

Technical analysis shows that after breaking through the all-time high, the Nasdaq 100's RSI indicator remained above 55—a healthy range—and the middle band of the Bollinger Bands diverged upward, indicating a solid bullish trend. Although the STOCHRSI indicator was overbought (77.87), the narrowing negative difference in the MACD indicator suggested limited pullback pressure.

However, the market still needs to watch out for three major risks: First, the Israel-Iran ceasefire agreement lacks a formal text and monitoring mechanisms, and the two sides have not reached a consensus on core conflicts such as the nuclear issue and missile development, meaning the conflict could restart at any time. Second, the timing and magnitude of Fed rate cuts are uncertain—if inflation rebounds, it could lead to a policy reversal. Third, tech stocks are already at historically high valuations, with the Nasdaq 100's forward P/E ratio reaching 30 times, higher than the long-term average of 25 times, so investors should be wary of pullbacks triggered by earnings misses.

Looking back at history, the impact of geopolitical events on U.S. stocks often shows a "pulse-like" characteristic. For example, after the U.S.-Iran conflict escalated in 2020, the S&P 500 fell 4.6% within a week, but rebounded 7.2% within a month as the situation eased. The market reaction to the current Israel-Iran ceasefire is similar—driven by short-term sentiment, but medium-to-long-term trends still depend on economic fundamentals and the policy environment.

Institutions generally maintain an optimistic attitude toward U.S. stocks: Bank of America raised its year-end 2025 target for the Stoxx Europe 600 Index from 500 to 530, and Goldman Sachs expects the S&P 500 to reach 6,200 by the end of the year. Jeremy Siegel, a professor at the Wharton School, even stated bluntly that as long as the conflict does not escalate, the S&P 500 will hit an all-time high in the coming weeks.

In summary, the combination of the Israel-Iran ceasefire agreement and the Fed's loose policy expectations has provided strong upward momentum for U.S. stocks. However, geopolitical uncertainties and valuation pressures remain as overhanging risks. Investors should closely monitor the July Fed meeting, progress in Iran nuclear talks, and second-quarter earnings of tech giants to grasp market trends. In the current environment, focusing on high-growth tech stocks and cyclical stocks benefiting from economic recovery may be the optimal strategy to balance risk and return.