US stocks edge higher as Middle East ceasefire hopes and Fed signals drive market optimism

US stocks opened slightly higher on Wednesday, extending Tuesday’s robust rally, as investors navigated ongoing Middle East tensions and anticipated key signals from the Federal Reserve. Optimism around stabilising oil prices and cautious hopes for a sustained ceasefire between Iran and Israel supported market sentiment, though uncertainties lingered.

The S&P 500 climbed 0.3 percent in early trading, edging closer to its all-time intraday high of 6,147.43, set in February. The tech-heavy Nasdaq Composite outperformed with a 0.7 percent gain, driven by strength in megacap technology stocks like Nvidia and Apple. Meanwhile, the Dow Jones Industrial Average dipped 57 points, or 0.15 percent, reflecting caution in cyclical sectors such as energy and industrials.

Tuesday’s rally saw the Nasdaq 100 close at a record high, fueled by a sharp 6.3 percent drop in West Texas Intermediate (WTI) crude futures to $81.45 per barrel, marking a two-week low. Brent crude also fell 5.8 percent, easing inflationary pressures that had rattled markets earlier in the month. The decline in oil prices, sparked by diplomatic progress toward de-escalation in the Middle East, bolstered investor confidence, as lower energy costs could alleviate strain on consumers and businesses. However, analysts warned that volatility in oil markets could persist if geopolitical risks flare up again.

Despite challenges—including heightened geopolitical uncertainty, potential tariff disruptions under a new administration, and mixed signals on consumer spending—US equities have demonstrated remarkable resilience. The Cboe Volatility Index (VIX), often called Wall Street’s ‘fear gauge’ hovered near 13.5, signaling relative calm despite global uncertainties.

Investors are now laser-focused on Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee at 2:00 PM EST today, where he is expected to address inflation trends, interest rate expectations, and the Fed’s balancing act between growth and price stability. Markets are pricing in a 70 percent chance of no rate change at the next FOMC meeting, per the CME FedWatch Tool, though Powell’s tone could sway expectations. Additionally, new home sales data for September, due at 10:00 AM EST, is projected to show a slight uptick to an annualised rate of 680,000 units, offering further clues about housing market resilience amid elevated mortgage rates.

Sector performance varied, with technology and consumer discretionary stocks leading gains, while energy stocks lagged as oil prices continued to soften. Small-cap stocks, tracked by the Russell 2000, rose 0.4 percent, signaling broader market participation. Meanwhile, the 10-year Treasury yield held steady near 4.85 percent, a 16-year high, keeping borrowing costs in focus.

As markets digest these developments, analysts highlight the importance of upcoming earnings reports from major banks like JPMorgan Chase and Wells Fargo, due later this week, which could shed light on consumer health and corporate profitability. With the S&P 500 up 18 percent year-to-date, investors remain cautiously optimistic but vigilant for signs of economic slowdown or policy shifts.

Globally, markets elsewhere

European markets were poised for a cautious start, with futures indicating a muted opening. FTSE 100 futures in the UK were flat, while Germany’s DAX futures and France’s CAC 40 futures each ticked down 0.1 percent.

The broader Euro Stoxx 50 futures also held steady, reflecting investor caution ahead of US economic data and Federal Reserve signals.

Asia-Pacific markets traded mixed on Wednesday, reflecting varied responses to the Middle East ceasefire and Federal Reserve commentary.

Hong Kong’s Hang Seng Index surged 1.22 percent to 24,471.02, and mainland China’s CSI 300 rose 1.44 percent to 3,960.07, driven by optimism in consumer and tech sectors.

Japan’s Nikkei 225 gained 0.39 percent to 38,942.07, while the Topix remained flat at 2,782.24.

South Korea’s Kospi edged up 0.15 percent to 3,108.25, but the small-cap Kosdaq slipped 0.34 percent to 798.21.

Australia’s S&P/ASX 200 was nearly unchanged, closing at 8,559.20, up just 0.04 percent.