U.S. Stock Futures Rally Over Tensions Between Israel and Iran; Fed Meeting on the Horizon

U.S. stock index futures rose modestly on Monday, attempting to recover some of last week’s sharp losses as investors brace for the Federal Reserve’s interest rate decision later this week.

At 05:25 ET (09:25 GMT), Dow Jones futures gained 145 points (0.4%), S&P 500 futures rose 27 points (0.5%), and Nasdaq 100 futures climbed 113 points (0.5%).

Major Wall Street indices closed sharply lower on Friday after escalating tensions between Israel and Iran unnerved markets. The S&P 500 fell 1.1%, the Nasdaq Composite dropped 1.3%, and the Dow Jones Industrial Average lost 1.8%, with all three posting weekly declines.

Middle East Tensions Remain High

Geopolitical uncertainty continued into Monday as Israel and Iran exchanged further missile strikes over the weekend. Reuters reported that Iran, through mediators Oman and Qatar, has refused to join ceasefire talks led by the U.S. while Israeli attacks persist. Israel, in turn, has advised residents near Iranian nuclear facilities to evacuate, suggesting further strikes could target sensitive sites.

So far, the conflict remains contained, and crucially, investors appear to believe Iran will not attempt to block the Strait of Hormuz—a key global shipping route.

Fed Decision in Focus

The Federal Reserve begins its two-day policy meeting on Tuesday, with markets expecting interest rates to remain steady near 4.5% when the decision is announced on Wednesday. However, attention will center on the Fed’s forward guidance, especially in light of recent soft inflation readings, cooling labor data, and signs of slowing economic growth.

Although the Fed has signaled no imminent policy shift, market expectations have tilted toward rate cuts in the coming months. President Donald Trump has also increased pressure on the central bank to lower rates further, following a 100 basis point reduction earlier this year. Still, the Fed has indicated a slower pace of cuts in 2025, citing ongoing uncertainty tied to inflation and trade policy.

Investors are also watching for fresh U.S. manufacturing survey data later Monday.

G7 Leaders Meet Amid Trade Tensions

The G7 summit begins this week in Canada, likely overshadowed by trade disputes, particularly the U.S. tariffs on imports from key allies. Canadian Prime Minister Mark Carney has emphasized a focus on peace and cooperation but hinted at retaliatory action if U.S. tariffs on steel and aluminum remain in place.

Oil Volatile Amid Conflict

Oil prices gave back early gains on Monday as traders weighed the Israel-Iran conflict. By 05:25 ET, Brent crude was down 0.7% at $73.69 per barrel, and WTI crude fell 0.6% to $70.85. Both benchmarks had spiked by more than $4 earlier in the session as the conflict escalated, raising fears of a broader regional crisis.