Global equity markets rallied sharply after former U.S. President Donald Trump said Washington and Tehran were close to reaching an agreement, boosting hopes of easing geopolitical tensions even as underlying risks persist.
Stocks jump on geopolitical optimism
U.S. benchmarks posted strong gains, with the Dow Jones Industrial Average rising 1.9%, the Nasdaq climbing 3.42%, and the S&P 500 advancing 1.73%. The rally spilled into Asia, where South Korea’s KOSPI surged 6.69% at the open, briefly triggering a circuit breaker before extending gains to around 8%. Japan’s Nikkei 225 added 1.37%.
Oil prices fell 4.3% on expectations of reduced supply risk, while gold rose 3.1% as traders maintained hedges against uncertainty.
The move followed reports that Trump had canceled a planned strike on Iran and indicated that a draft agreement was nearing completion, with multiple Middle Eastern countries involved. However, both Iran and Israel later denied approving any deal, tempering some of the initial enthusiasm.
Inflation data shapes rate outlook
The market rebound coincided with fresh U.S. inflation data that delivered mixed signals. The May Consumer Price Index showed a 4.2% annual increase, the highest in three years, while the monthly reading rose 0.5%. Core inflation, however, came in softer than expected at 0.2% on a monthly basis.
This combination eased immediate pressure on the Federal Reserve. Market pricing indicates a 96.3% probability that the Fed will hold rates steady in June.
Rising energy costs remained a key driver of headline inflation, while moderating housing prices helped offset broader pressures. Treasury yields moved slightly higher after the release, but expectations for rate hikes in 2026 declined.
Asia policy shifts and liquidity concerns
Attention is turning to central bank policy in Asia. The Bank of Japan is widely expected to raise its benchmark rate to 1.0%, its highest level since 1995, a move that could tighten liquidity across regional markets.
Currency markets reflected ongoing pressure, with the yen weakening to 160.168 against the U.S. dollar. In South Korea, borrowing among retail participants increased, with overdraft balances rising by 600 billion won as traders attempted to average down following recent volatility.
Warning signals build beneath rally
Despite the strong rebound, several institutions flagged downside risks. Barclays strategists warned the S&P 500 could decline 6% to 7% due to overbought technical conditions. Sentiment data from the American Association of Individual Investors showed bearish views climbing to 47.7%, نزدیک yearly highs.
BofA Securities reported that 70% of bear-market indicators have been triggered, with valuations exceeding historical norms on 17 of 20 measures. Within the technology sector, the gap between top and bottom performers has widened to levels not seen since 2000.
In South Korea, hedging activity increased sharply. The ratio of protective put options to call options on the Kospi 200 reached 2.5, the highest level in five years. At the same time, retail traders sold more than 1 trillion won in overseas equities in early June, suggesting a shift toward domestic markets.
Spacex ipo draws massive capital
A major source of liquidity pressure has emerged from SpaceX’s U.S. initial public offering. Retail subscriptions have exceeded $100 billion, far above the planned $75 billion deal size, with some institutions committing more than $10 billion each.
Demand could reach up to 10 times the offering size, pulling significant capital away from existing equities and potentially amplifying market volatility.
Outlook remains fragile
While headline-driven optimism has lifted markets, conflicting signals continue to cloud the outlook. Iranian officials have not confirmed that an agreement has been finalized, underscoring how quickly sentiment can shift.
At the same time, persistent inflation, tightening global liquidity, and uneven sentiment suggest the rally may lack strong conviction. Traders are likely to remain cautious as geopolitical developments unfold and monetary policy shifts across major economies continue to reshape market conditions.
Amid volatile sentiment and shifting liquidity, explore actionable insights in our latest market outlook for navigating global equity moves.
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