U.S. equity futures were little changed early Wednesday, pointing to a muted start as markets pause following two sessions of strong gains.
Investors appear hesitant to extend the rally, which recently pushed both the Nasdaq and the S&P 500 to their highest closing levels in more than two months.
Lingering uncertainty around the Middle East conflict is also keeping some traders on the sidelines, with attention focused on the possibility of another round of U.S.-Iran negotiations.
Speaking to Fox Business, President Donald Trump said the conflict is “very close to over” and reiterated that Iran wants to strike a deal “very badly.”
He also suggested that the “stock market is going to boom” once tensions between the U.S., Israel and Iran are resolved.
Despite the recent rally, AJ Bell investment director Russ Mould warned that “there remains considerable uncertainty over a successful outcome from peace negotiations.”
Stocks rallied sharply on Tuesday, building on Monday’s gains, with major indices closing firmly higher and technology stocks leading the advance.
By the end of the session, the main benchmarks were at or near their highs. The Nasdaq rose 455.35 points, or 2%, to 23,639.08, the S&P 500 added 81.14 points, or 1.2%, to 6,967.38, and the Dow Jones Industrial Average gained 317.74 points, or 0.7%, to 48,535.99.
The sustained advance lifted both the Nasdaq and the S&P 500 to their strongest closing levels in over two months, while the Dow reached a one-month high.
Market sentiment has been supported in part by optimism around a potential second phase of U.S.-Iran talks aimed at resolving the conflict.
Earlier in the week, President Donald Trump said the U.S. had been approached by Iran regarding renewed discussions, adding, “They’d like to make a deal very badly.”
In a subsequent interview with the New York Post, he said a follow-up round of talks “could be happening over next two days.”
Expectations of diplomatic progress have weighed on oil prices, with U.S. crude futures falling 7%.
“Previously, the narrative was straightforward: the longer the war dragged on, the worse the outlook for growth, inflation and risk assets,” said Daniela Hathorn, Senior Market Analyst at Capital.com. “Now, the dynamic appears to have flipped.”
“With a ceasefire framework still loosely in place and the US attempting to control the Strait, the absence of escalation, rather than the presence of conflict, is being treated as a positive signal,” she added. “In other words, each day without a major disruption to Gulf energy infrastructure is being read as incremental progress toward stabilization.”
Further supporting sentiment, data from the Labor Department showed U.S. producer prices rose less than expected in March.
The producer price index for final demand increased 0.5% in March, matching a downwardly revised figure for February.
Economists had forecast a 1.2% increase, compared with an initially reported 0.7% gain in the prior month.
On an annual basis, producer prices rose 4.0% in March, up from 3.4% in February, but below expectations of 4.6%.
Airline stocks led gains across sectors, with the NYSE Arca Airline Index jumping 5.1%.
Brokerage stocks also advanced, as reflected by a 2.4% rise in the NYSE Arca Broker/Dealer Index.
Biotech, retail and semiconductor stocks posted notable gains, while energy shares declined sharply alongside falling oil prices.
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