Markets rally as Iran talks lift risk appetite

Wall Street climbed to record levels as hopes for renewed US-Iran diplomacy, a stronger-than-expected Intel forecast and reduced uncertainty around Federal Reserve succession combined to fuel a broad risk rally across US assets.

S&P 500 gained nearly 1 per cent on Friday, extending its longest weekly advance since 2024 and pushing the benchmark to an all-time high. Nasdaq also advanced, helped by a powerful move in semiconductor and artificial intelligence-linked shares, while Treasury yields slipped as traders increased bets that monetary policy could turn more supportive later this year.

Market sentiment improved after President Donald Trump moved to send special envoy Steve Witkoff and senior adviser Jared Kushner to Islamabad for discussions involving Iranian officials. Pakistan has emerged as a key intermediary in efforts to restart talks, with Iranian Foreign Minister Abbas Araghchi arriving in the capital as Washington seeks a path to de-escalation after weeks of confrontation that have disrupted energy markets and shipping routes.

Iran has maintained that any contact with Washington would remain indirect, while US officials have signalled willingness to test whether Tehran is prepared to offer terms that could halt further escalation. The diplomatic opening is being closely watched because any easing of tensions around the Strait of Hormuz would reduce pressure on crude markets, freight costs and inflation expectations.

US crude fell towards $94 a barrel as traders priced in a lower probability of immediate supply disruption. Energy prices remain highly volatile, with the Gulf conflict having pushed risk premiums sharply higher through April. Any durable decline in oil would help central banks, consumers and energy-intensive industries, though analysts continue to warn that shipping security and production restoration could take time even if talks progress.

Technology shares provided another major pillar of the rally. Intel surged after issuing a forecast that exceeded market expectations, strengthening investor confidence that demand linked to artificial intelligence infrastructure, data centres and next-generation chips remains resilient. Chief Executive Lip-Bu Tan has sought to restore credibility at the company after years of execution challenges, and the latest outlook added to optimism that Intel’s turnaround efforts are gaining traction.

The company’s rally lifted wider semiconductor sentiment, reinforcing the view that chipmakers remain central to the market’s earnings story. Investors have treated AI-related demand as one of the strongest buffers against slower global growth, although valuations across parts of the technology sector remain demanding and vulnerable to disappointment if revenue growth slows.

Financial markets also reacted positively to the Justice Department’s decision to end its criminal investigation into Federal Reserve Chair Jerome Powell over renovation cost overruns at the central bank’s headquarters. The inquiry had become a political flashpoint and complicated the Senate path for Kevin Warsh, Trump’s nominee to succeed Powell when his chairmanship ends on May 15.

The closure of the case was seen as removing a major obstacle to Warsh’s confirmation, though questions over Federal Reserve independence remain central to the debate. Warsh, a former Fed governor, has faced scrutiny from Democrats and some market participants over whether he would resist political pressure on interest rates. Powell has repeatedly defended the central bank’s independence and its data-driven approach to policy.

Lower Treasury yields reflected expectations that a Warsh-led Fed may be more willing to ease policy if inflation pressures moderate. Traders also took comfort from the possibility that lower oil prices could reduce one of the biggest upside risks to inflation, although the labour market, wage growth and tariff-related price pressures remain important variables.

The rally was not without caution. Some investors warned that markets may be moving faster than the diplomatic facts justify, given the absence of a formal US-Iran agreement and Tehran’s resistance to direct negotiations. Previous rounds of talks have broken down over nuclear restrictions, regional influence and security guarantees, leaving a wide gap between the two sides.