Dow jumps 600 points as US-Iran pause lifts stocks ahead of Fed decision

US stocks opened higher on Monday as easing tensions between the United States and Iran boosted investor sentiment, while a sharp decline in oil prices lifted travel-related stocks ahead of a crucial week featuring major technology earnings, key inflation data and the Federal Reserve's interest rate decision.

The Dow Jones Industrial Average climbed about 602 points, or 1.16%, while the S&P 500 advanced 0.79%.

The Nasdaq Composite gained 0.86% as investors looked beyond last week's market weakness driven by geopolitical tensions and concerns over artificial intelligence spending.

The rebound came after the United States and Iran paused hostilities over the weekend, reducing immediate concerns over energy supply disruptions.

However, markets remained alert as attacks by Yemen's Iran-aligned Houthis on Saudi oil installations along the Red Sea continued, while shipping through the Strait of Hormuz remained below normal levels.

Oil prices tumble as travel stocks gain

A sharp drop in crude prices supported sectors that typically benefit from lower fuel costs.

Brent crude futures fell about 6.8% to around $90.10 per barrel, while US West Texas Intermediate crude declined roughly 5.7% to about $84.20 per barrel after the pause in hostilities reduced immediate fears of supply disruptions.

The decline in oil prices lifted airline and cruise stocks in trading.

United Airlines and Southwest Airlines rose more than 3%, while Royal Caribbean gained 2.7% and Carnival advanced 4.3%.

Energy companies, however, moved lower as crude prices retreated. Occidental Petroleum and Exxon Mobil each declined about 2% in trading.

Investors also continued to monitor broader geopolitical developments after Ukraine reportedly struck an Iranian commercial vessel in the Caspian Sea, prompting Tehran to accuse Kyiv of carrying out a hostile act.

Fed decision and inflation data dominate market focus

Attention has shifted to the Federal Reserve's policy meeting scheduled for Wednesday, with investors widely expecting policymakers to leave interest rates unchanged.

Market participants, however, continue to price in at least 25 basis points of rate hikes later this year.

The June Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation measure, will be released a day after the policy decision and is expected to provide further guidance on the outlook for monetary policy.

Volatility expectations eased, with the CBOE Volatility Index falling to 17.77.

Markets ended last week under pressure as rising oil prices and escalating conflict in the Middle East fueled concerns that inflation could remain elevated ahead of the Fed meeting.

Big Tech earnings to test AI investment outlook

This week's earnings season is expected to provide another major test for investor confidence in artificial intelligence spending.

Microsoft, Amazon, Meta Platforms and Apple are all scheduled to report quarterly results after concerns intensified last week following Alphabet's increased capital spending plans and negative free cash flow, along with Tesla's weak cash generation.

In trading, Microsoft, Amazon and Meta each gained more than 1%, while Apple edged 0.7% higher.

However, Nvidia fell 0.26%.

Despite Monday's rebound, investors remain cautious after the recent selloff in chip stocks.

The Nasdaq Composite is down about 8% from its record high, while the Philadelphia Semiconductor Index entered bear market territory earlier this month after falling more than 20% from its recent peak.

The coming earnings reports from the largest technology companies are expected to determine whether enthusiasm for AI infrastructure spending returns or concerns over rising capital expenditures continue to weigh on semiconductor and technology stocks.