US stocks near their record as oil prices tumble and stocks rally worldwide

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NEW YORK (AP) — Oil prices are dropping further, and U.S. stocks are pulling close to their all-time high Tuesday on hopes that Israel’s war with Iran will not damage the global flow of crude, even if a tentative truce seemed to fray under fire in the morning.

The S&P 500 was 1.1% higher in afternoon trading, following up on even bigger gains for stocks across Europe and Asia, after President Donald Trump said late Monday that Israel and Iran had agreed to a “complete and total ceasefire.” The main measure of Wall Street’s health is back within 1% of its record set in February after falling roughly 20% below during the spring.

The Dow Jones Industrial Average was up 517 points, or 1.2%, as of 12:47 p.m. Eastern time, and the Nasdaq composite was 1.5% higher.

The strongest action was again in the oil market, where a barrel of benchmark U.S. crude fell 6.1% to $64.33. Brent crude, the international standard, dropped 6.1% to $66.21.

The fear throughout the Israel-Iran conflict has been that it could squeeze the world’s supply of oil, which would pump up prices for gasoline and hurt the global economy. Iran is a major producer of crude, and it could also try to block the Strait of Hormuz off its coast, through which 20% of the world’s daily oil needs passes on ships.

Oil prices began falling sharply on Monday after Iran launched what appeared to be a limited retaliatory strike that did not target the production or movement of oil. They kept falling even after attacks continued past a deadline to stop hostilities early Tuesday. Trump later said that the ceasefire was “in effect.”

Oil prices have dropped so much in the last two days that they’re below where they were before the fighting began nearly two weeks ago.

With the global oil market well supplied and the OPEC+ alliance of producing countries steadily increasing production, oil prices could be headed even lower as long as the ceasefire holds and a lasting peace solution can be found, said Carsten Fritsch, commodities analyst at Commerzbank.

Falling oil prices should take some pressure off inflation, and that in turn could give the Federal Reserve more leeway to cut interest rates.

Wall Street loves lower rates because they can give the economy a boost by making it cheaper for U.S. households and businesses to borrow money to buy a car or build a factory. But they could also give inflation more fuel. That latter threat is why the Fed has been hesitant to cut rates this year after lowering them through the end of last year.