Oil drops below $100, Nasdaq hits record highs as markets bet on diplomacy and AI

Between the weekend and Tuesday, financial markets experienced a rapid rebalancing phase. After weeks dominated by the conflict between the United States and Iran and the risk of further energy supply disruptions, investors began to price in a possible diplomatic easing. The result was a sharp decline in oil prices, a partial decline in bond yields, and a return to risk appetite, especially in the technology sector. At the same time, however, the prospect of a still-restrictive Federal Reserve kept the dollar strong and prevented the market from interpreting the move as a definitive return to normalcy.

Oil is back under pressure

The main catalyst came from the Middle East. Iran's overtures to a possible return to negotiations with Washington during the United Nations General Assembly reduced the geopolitical premium embedded in energy prices. Brent crude closed at $100.34 a barrel on Monday, down 3.4% , while WTI fell 4.5% to $95.78 . The move continued on Tuesday, bringing Brent crude back below the psychological $100 threshold.

The move was reinforced by Tehran's willingness to consider reopening the Strait of Hormuz within a week , conditional on a reduction in US military pressure and an easing of the blockade on Iranian ports. The news had an immediate impact because Hormuz remains one of the most sensitive passages in the entire global energy system: any normalization of transit would significantly reduce the risk of a prolonged supply shock.

The situation, however, remains fragile. Diplomatic declarations do not amount to an agreement, and trade in the Strait continues to be significantly reduced compared to pre-conflict levels. The market has therefore corrected a significant portion of the risk premium, but has not eliminated it.

Saudi Arabia tries to normalize flows

A second bearish factor for crude oil came from Saudi Arabia. After the attacks that damaged the East-West pipeline to the Red Sea, Riyadh restarted operations on the line, initially at reduced capacity. The reactivation is particularly significant because the infrastructure represents one of the main alternatives to the Strait of Hormuz for Saudi crude.

At the same time, Saudi Aramco increased exports from Gulf terminals, loading approximately 14 million barrels in a single day. The combination of the gradual return of the East-West Pipeline and increased shipments from the Gulf signaled that the kingdom is managing to recover some of the volumes lost during previous disruptions.

This improvement on the supply side was crucial for sentiment. In the previous weeks, the market had begun to factor in not only the Iranian risk, but also the vulnerability of the Saudi Arabian routes. The recovery in exports reduced the likelihood of an immediate shortage scenario, contributing to Brent's correction.

The Fed remains the real brake

The drop in oil prices brought relief to inflation expectations, but it didn't radically change the outlook for U.S. monetary policy. After the previous week's tightening, Fed Funds futures indicated a 55% probability of a further hike as early as October and a 91% probability of at least one more hike by the end of the year.

This is the point that continues to limit the potential of bond markets. As long as inflation remains sensitive to energy and US domestic demand continues to show resilience, the Federal Reserve will have little incentive to signal an accommodative shift.

The same mechanism supports the dollar. On Tuesday, the dollar index reached 100.66 , a nearly two-month high, before retreating slightly. The US currency thus continues to benefit from the yield differential against major developed economies. For investors, the message remains clear: the drop in oil prices can ease inflationary pressures, but it alone is not enough to change the monetary regime.

AI Brings Nasdaq Back to Highs

The real momentum in stocks came from technology. On Monday, the Nasdaq hit a new closing high , buoyed by renewed buying in artificial intelligence-related stocks and the simultaneous decline in oil and yields.

AMD rose about 10% , reaching a market capitalization of $1 trillion for the first time. The move dragged down the entire semiconductor sector, with the SOX index rising 4.3% . The rally highlights how the market has rapidly returned to concentrating liquidity in companies perceived as the main beneficiaries of the artificial intelligence investment cycle.

The market is therefore clearly distinguishing between sectors most exposed to energy costs and those capable of delivering structural growth. AI remains the main theme capable of attracting capital even in the face of high interest rates, especially when bond yields stop rising.

Europe is breathing too

The improved sentiment spread to Europe. The STOXX 600 gained 1% on Monday, posting its best performance since July. Technology and banking stocks both rose 1.7% , boosted by falling oil prices, reduced pressure on yields, and renewed buying in tech stocks.

However, the European rebound should be interpreted with greater caution than the American one. Europe remains more exposed to rising energy costs and has a less powerful technological engine than the United States. Precisely for this reason, the decline in crude oil has had a particularly positive effect: less pressure on energy means lower risks for industrial margins, consumption, and inflation.

A still unstable balance

The last few sessions have thus shown a market willing to quickly recover risk as soon as the energy outlook appears less dire. Oil falling back below the $100 threshold, the recovery in Saudi supply, and diplomatic overtures toward Iran have provided a boost to stocks and bonds.

But the picture remains shaped by two opposing forces. On the one hand, technology and artificial intelligence continue to provide powerful support to indices; on the other, the Fed and the dollar are a reminder that the cost of capital remains high. The easing of oil prices has thus reopened risk space, but has not eliminated fragilities. As long as these dynamics continue to coexist, markets will remain extremely sensitive to any changes in energy prices and interest rate expectations.