• Dow Jones futures rose as optimism over a US-Iran deal eased market worries about inflation and impending Fed rate hikes.
• The US and Iran are nearing a 60-day ceasefire deal to demine and reopen the Strait of Hormuz.
• Higher energy prices could push the Fed toward interest rate hikes instead of expected rate cuts.

Dow Jones futures advance 0.82% to near 50,100 during European hours on Monday. Meanwhile, the S&P 500 rise 0.93% above 7,550, and the Nasdaq 100 futures gain 1.38% above 29,950. Trading activity is expected to stay subdued as US regular markets will be closed due to the Memorial Day bank holiday.

US stock futures rise amid increasing optimism over a potential US-Iran agreement, which has eased broader market concerns about inflation and impending Federal Reserve (Fed) interest rate hikes.

A report by Axios cited a US official stating that the United States and Iran are close to signing an agreement that involves a 60-day ceasefire extension. Under this proposed deal, the Strait of Hormuz would be reopened, and Iran would agree to clear mines it deployed in the waterway while allowing ships to pass freely. In exchange for these actions, the United States would lift its current blockade on Iranian ports.

However, Reuters cited Iran’s Tasnim news agency indicating that the US government is still obstructing certain clauses of the agreement to end the conflict, specifically regarding the release of blocked Iranian assets. Further tempering immediate expectations, US Secretary of State Marco Rubio informed the New York Times that while an agreement with Iran has garnered regional support, a comprehensive nuclear deal could not be achieved quickly or carelessly.

Traders remain cautious as the potential impact of elevated energy prices on inflationary pressures in the United States could recalibrate Federal Reserve expectations away from rate cuts and toward potential future rate hikes. According to the CME FedWatch tool, market participants are now pricing in a nearly 41.0% probability that the Fed will implement a 25-basis-point interest rate increase by the end of the year.

Market momentum was mixed but generally positive last week, with the Dow Jones leading the gains at 2.13%. The S&P 500 and Nasdaq 100 also climbed, posting modest increases of 0.88% and 0.45%, respectively. This upward movement was largely driven by a strong wave of corporate earnings and growing optimism surrounding peace negotiations in the Middle East.

Looking ahead, investor attention is shifting toward critical US economic indicators and upcoming corporate updates. Key data releases on the radar include PCE inflation, GDP growth, and personal income and spending metrics. Additionally, Wall Street will be closely watching corporate earnings reports from several major companies, including Zscaler, Salesforce, and Dell Technologies.