Stocks Rally After Early Drop as Israel-Lebanon Talks Lift Sentiment

U.S. stocks closed higher Thursday after shaking off an early selloff, as reports that Israel would negotiate with Lebanon helped calm geopolitical nerves and sparked a late-session rebound in risk assets. The Dow Jones Industrial Average rose 275.88 points, or 0.58%, to 48,185.8, while the S&P 500 gained 41.82 points, or 0.62%, to 6,824.63, and the Nasdaq Composite advanced 187.42 points, or 0.83%, to 22,822.4.

Markets opened lower amid lingering uncertainty around a fragile Middle East ceasefire and elevated oil prices, but sentiment shifted decisively after headlines pointed to potential diplomatic progress. Reports that Israel is open to talks with Lebanon raised hopes for de-escalation in a conflict that has disrupted energy markets and pressured risk assets.

Crude oil hovered near $100 per barrel for much of the morning. At one point, all three major indexes were down before steadily recovering into the afternoon. By late trading, equities had turned broadly positive as oil prices pulled back from session highs and volatility eased, with the VIX falling more than 6%. Crude oil settled near $98.93 after earlier spikes tied to concerns about restricted flows through the Strait of Hormuz.

On the macro front, investors also digested the February Personal Consumption Expenditures (PCE) report from the Bureau of Economic Analysis, which showed inflation rising 0.4% on the month and 2.8% year-over-year. Core PCE, the Federal Reserve’s preferred gauge, remained elevated at around 3%, underscoring persistent inflation pressures despite some moderation.

The data, while largely in line with expectations, reinforced the view that inflation remains above the Fed’s target, complicating the outlook for interest rate cuts.

Looking ahead, markets are now focused squarely on Friday’s Consumer Price Index (CPI) report, which could provide a more current read on inflation dynamics, particularly as higher oil prices begin to filter through the economy. Analysts warn that energy-driven inflation could test market resilience in the near term, especially if the Iran war flares again.

Despite those risks, Thursday’s late-session rally suggests investors remain willing to add risk on signs of geopolitical stabilization, even as inflation and monetary policy uncertainty continue to loom.