Stocks Rise Early on Hopes for End to Iran War

Published as of: May 26, 2026, 9:20 a.m. ET

(Tuesday market open) Stocks looked poised to start the holiday-shortened week with solid gains, as chip stocks rose in early trade, after the U.S. and Iran reportedly agreed to the broad outlines of a peace deal, though limited U.S. strikes and Iranian threats of retaliation muddled the outlook a bit. The latest reading on U.S. consumer confidence is due at 10 a.m. ET. 

Earnings season is winding down for the quarter, though Dell (DELL), Marvell Technology (MRVL), Salesforce (CRM), and several retailers will have their turns this week. Investors will also have reports to digest on home prices and consumer confidence. Arguably the week's biggest number is April's Personal Consumption Expenditures (PCE) reading, which is due Friday and will provide a key gauge into inflationary pressures for investors and, more notably, the Federal Reserve. Kevin Warsh was officially sworn in as the Fed's 17th chairperson on Friday.

Ahead of the holiday weekend, markets were in moderate rally mode, cementing another weekly gain as hopeful investors digested murmurs of a forthcoming resolution to the Iran war. The Dow tacked on almost 300 points to notch a new record-high close, while the S&P 500 chalked up another winning week—its eighth in a row. "I'm encouraged to see fresh all-time highs in both the S&P 500 Equal Weight and the Dow Jones Industrial Average, which are both bullish and indicate a healthy broadening of the rally," noted Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research, or SCFR.

1. Meet the new boss: After being officially sworn in on Friday, Warsh said that he hopes to lead a "reform-oriented" Fed and learn from "past successes and mistakes." The former investment banker previously told the Senate at his confirmation hearing that he favors a less communicative Fed, a shift that could create more uncertainty for investors as they try to anticipate interest-rate moves. "While I'm not naive about the challenges we face, I believe these years can bring unmatched prosperity that will raise living standards for Americans from all walks of life, and the Fed has something to do with it," Warsh said in his first remarks as Fed Chair. Investors hoping for rate cuts this year under Warsh were dealt another setback Friday, however. Just before the swearing in, Fed Governor Christopher Waller—who until recently had advocated for lower rates—delivered hawkish remarks at an economic forum in Germany. "Inflation is not headed in the right direction," he said, adding that "a rate cut is no more likely in the future than a rate increase." After Waller's comments, the futures market priced in nearly 70% odds of at least one rate hike by year-end, according to the CME Fed Watch Tool. Prior to the conflict in the Middle East, markets were anticipating a rate cut this year.
    
2. Not-so premium? The spread between the S&P 500 earnings yield and the 10-year Treasury yield, known as the equity risk premium (ERP), reflects the additional return investors receive for owning equities over bonds. While earnings yields have risen alongside strong first quarter results, the increase in Treasury yields has more than offset that improvement. According to Bloomberg, the spread has narrowed sharply from 0.70 to 0.17 over the past three months, driven largely by the rise in the 10-year yield from 3.93% to 4.63%. As that spread compresses, equities offer less relative value compared with bonds. For the ERP to widen back to prior levels, either earnings growth must remain exceptionally strong, or bond yields must move lower. That may prove challenging, however, given persistent inflation pressures, higher oil prices, and a Federal Reserve that appears more inclined to hold rates higher for longer—or potentially raise them further.
    
3. Getting sentimental: The University of Michigan reported its final Consumer Sentiment Index reading for May on Friday, revealing a tumble to record lows. The reading, coinciding with all-time highs for many market averages, came in at 44.8, south of the mid-month preliminary score (and analysts' estimates) of 48.2. Inflation expectations for the year ahead—likely a major contributor in sinking sentiment—rose to 4.8%, up from 4.7% in April and notably higher than pre-war levels of 3.4%. "The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances," noted Joanne Hsu, economist and director of the Index. Meanwhile, the latest weekly reading from the American Association of Individual Investors (AAII) showed the bears on top, with bearish sentiment eclipsing bullish, 43.6% to 31.7%. While rising pessimism may give some investors pause, others view a bearish backdrop as a possible opportunity for contrarian plays.

• Dell (DELL) and HP (HPQ) gained nearly 17% and 15.3%, respectively, on Friday, lifted by news that competitor Lenovo saw an 84% surge in AI-related revenue. Dell will take its turn in the earnings confessional Thursday, with analysts expecting per-share results of $2.94.  
   
• Micron Technology (MU) jumped more than 6% in early trade as chip stocks rose. Qualcomm (QCOM) rose more than 2%, Advanced Micro Devices (AMD) gained nearly 3%, and Nvidia (NVDA gained more than 1%. Micron might have gotten an extra boost from positive comments on Friday by President Trump.
   
• AutoZone (AZO) fell about 5% in pre-market trade after the car-parts retailer reported better-than-expected earnings but missed analysts' revenue expectations and registered disappointing growth in international markets.
   
• Brent crude oil futures (/B) rose nearly 3% while WTI Crude Oil futures (/CL) fell about 4% after U.S. strikes over the long weekend called the durability of the Iran war ceasefire into question.
   
• Energy giant BP (BP) fell about 5% in pre-market trade after the company's board removed chair Albert Manifold over governance-related issues.
   
• Eli Lilly (LLY) gained more than 2% early after attaining positive results in a phase-one trial of its cholesterol drug.
   
• Space-related stocks rose on positive enthusiasm toward a potential SpaceX initial public offering. Intuitive Machines (LUNR) jumped 11% in early trade after gaining nearly 12% on Friday, while AST SpaceMobile (ASTS) gained about 7% in pre-market trade.
   
• Shares in Ferrari (RACE) fell about 3% pre-market after the Italian luxury carmaker announced plans to launch its first fully electric vehicle.

Prediction market winners? Gambling on prediction markets and investing in financial markets are not the same and the two shouldn't be confused, said Liz Ann Sonders, chief investment strategist at SCFR. In a new Schwab short, Sonders cautioned that most profits on prediction markets are taken by algorithm-driven professionals. 

The Communications Services Select Sector Index ($IXC—candlesticks) has been range-bound of late, shuffling between 600 and 620. Its Relative Strength Index (RSI—white line) is also consolidating in a tight range. This sideways price action has brought the index atop its 200-day moving average (blue line). The index briefly breached this trendline during the broader-market pullback in March but regained its footing quickly. While the sector has rallied almost 43% year-over-year, its year-to-date return is more modest, at just 9.8%, which is roughly in line with the S&P 500.