Stoxx 600 hits all-time high of 638 as oil slump fuels rally

The Stoxx Europe 600 rose 0.9% to a record 638.53 on Monday after the US and Iran reached a preliminary pact to end their war and reopen the Strait of Hormuz, surpassing its previous peak set before the conflict began.

"The solid fundamentals that exist here in the US — based on consumer strength, capital expenditures, the corporate earnings cycle — have been outweighing in large part the risks associated with the Middle East conflict," said William Northey, investment director at US Bank Asset Management. However, the longer the conflict exists, the "more potentially damaging it can be to fundamental economic activity," he added.

The advance pushed the pan-European index past levels last seen before the Iran conflict erupted, a milestone that major US and Asian benchmarks had already reclaimed. The S&P 500 added 0.30% to close at 7,405.73, while the tech-heavy Nasdaq Composite gained 0.86% to 25,929.66. In Asia, the picture was mixed: Japan's Nikkei 225 dropped 3.85% to 64,024.6, and South Korea's Kospi tumbled more than 8% to 7,484.41, tracking Friday's tech-led selloff on Wall Street. Oil prices pared earlier gains after the ceasefire news, with West Texas Intermediate settling at $91.30 a barrel and Brent crude at $94.25.

The preliminary agreement removes a key source of inflationary pressure that had kept the European Central Bank on a restrictive footing. With oil prices falling sharply, traders are now pricing in a faster path to rate cuts, which would provide further support for rate-sensitive sectors. Investors will watch for official confirmation of the deal and details on the Strait of Hormuz reopening timeline in the coming days.

The rally in European equities contrasted with sharp declines in Asia, where South Korea's Kospi suffered its worst session in more than six years, falling more than 8% as the tech rout that erased 4.2% from the Nasdaq on Friday rippled across the region. The iShares Semiconductor ETF, which plunged 10% on Friday, rebounded nearly 6% on Monday, with Micron Technology surging close to 10% and Nvidia and Broadcom also recovering. The divergent moves highlight how Europe's lower exposure to technology stocks insulated the region from the worst of the volatility while allowing it to benefit from the US-Iran deal.

The reopening of the Strait of Hormuz, through which about 20% of global oil passes, would directly reduce European energy costs and ease supply chain disruptions that have weighed on the region's manufacturing sector. Brent crude, which had spiked above $100 during the height of the conflict, has now retreated to $94.25, and further declines are expected as the deal takes effect. Lower energy prices would provide a direct boost to European households and businesses, potentially accelerating the economic recovery that has lagged behind the US.

"Blockbuster offerings have marked the peak of excess in past market cycles, so there seems to be an awkward silence around what this could signal for sentiment," said Callie Cox, chief market strategist at Ritholtz Wealth Management, referring to SpaceX's planned IPO on Friday. "Many investors seem restrained and skeptical, but can that temperament exist when the biggest IPO of all time is on deck?"

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