Canadian and U.S. stock markets posted significant gains Monday afternoon following President Donald Trump's announcement that he had ordered military forces to postpone planned strikes against Iranian power facilities after what he described as "productive conversations" with Tehran.
The Toronto Stock Exchange climbed approximately two per cent by publication time, while major U.S. indexes advanced more than one per cent despite oil prices falling roughly 10 per cent on the news.
Iran's foreign ministry disputed Trump's claims, with a spokesperson stating they had held no discussions with the United States and that their conditions for ending regional conflicts remained unchanged. However, Israeli officials reportedly believe Washington and Tehran could engage in talks this week, according to Reuters sources.
Energy Sector Shows Resilience
Despite crude oil's sharp decline, energy stocks bucked the trend with the sector gaining 1.3 per cent alongside all 11 major S&P 500 industry groups. Consumer discretionary stocks led gains with a 2.9 per cent advance, while defensive healthcare stocks posted the smallest increase at 0.2 per cent.
"You never know who to believe but it does appear that Trump is trying to start discussions with somebody in Iran to resolve the war despite strong denials from Iran," said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York. "This has caused significant optimism in stock prices today."
Canadian Airlines Benefit
Air Canada shares rose approximately three per cent as investors anticipated lower fuel costs, while Onex Corporation, WestJet's parent company, gained nearly two per cent. U.S. carriers saw even stronger gains, with Alaska Air jumping more than five per cent and American Airlines and United Airlines each adding over four per cent.
The positive sentiment extended to cruise operators, with Norwegian Cruise Line shares surging almost eight per cent while Carnival Corp and Viking Holdings rose more than six per cent each.
Interest Rate Expectations Shift
Following Trump's diplomatic overtures, investors reduced bets on a Federal Reserve interest rate hike in December to 16 per cent probability from 25 per cent in the previous session, according to CME Group's FedWatch tool.
Traders now expect roughly a 70 per cent chance that rates will remain unchanged through year-end, scaling back expectations for cuts after the central bank adopted a hawkish stance due to inflation concerns.
The small-cap Russell 2000 index outperformed with a 2.9 per cent advance, recovering from correction territory after falling more than 10 per cent below its January 22 record close on Friday.
By 2:03 p.m. EST, the Dow Jones Industrial Average had risen 820.49 points or 1.80 per cent to 46,399.84, while the S&P 500 gained 98.83 points or 1.52 per cent to 6,605.31. The Nasdaq Composite advanced 351.27 points or 1.62 per cent to 21,998.88.
All three indexes were on track for their largest single-day percentage gains since February 6. Wall Street's fear gauge, the CBOE Volatility Index, retreated 1.78 points to 25 after earlier hitting its highest level in two weeks.
This article is based on reporting by Global Money and has been adapted for Canadian readers.
