Wall Street extends this week’s rebound a day ahead of Fed interest rate decision

Investing.com -- Wall Street on Tuesday ended higher, though the averages closed well off their session highs, as oil prices remained elevated amid the ongoing U.S.-Israel attack on Iran and Tehran’s response.

Market participants are looking ahead to a host of central bank interest rate decisions this week, including the Federal Reserve’s on Wednesday, for cues on how policymakers plan to combat any inflationary shock from surging oil prices. 

The benchmark S&P 500 index climbed 0.3% to settle at 6,717.19 points, paring back from a rise of as much as 0.8%. The tech-heavy NASDAQ Composite improved 0.5% to conclude at 22,479.53 points, eating into an increase of as much as 0.9%. The blue-chip Dow Jones Industrial Average added 0.1% to finish at 46,993.87 points, cutting into a gain of as much as 1%.

The main averages posted a solid advance on Monday, helped by a boost to technology stocks from Nvidia (NASDAQ:NVDA) and sliding oil prices. They added to that climb after the opening bell on Tuesday, but steadily gave up ground through the session as oil prices crept up.

"Higher oil and stock prices this morning may seem like the ultimate oxymoron but with news overnight that Israel killed Iranian security chief Ali Larijani there does appear to be some sustainable bullishness in the near term," Jake Dollarhide, CEO of Longbow Asset Management, told Investing.com.

"Regardless, this remains a very fragile market with any potential bad news around the oil trade or potential length of the conflict would easily lead to a swift reversal and a surge in the VIX," Dollarhide added.    

Iran loses key figures

Israel has said that Larijani is believed to have been killed in air strikes on Monday, the Wall Street Journal reported, citing people familiar with the matter.

Other media reports said Gholamreza Soleimani, the commander of Iran’s Basij paramilitary unit, which played a role in suppressing anti-government protests earlier this year, had been killed as well. There was no confirmation yet from Iranian officials or state-backed media.

As fighting in the Middle East rages on, the critical Strait of Hormuz, a vital waterway south of Iran through which a fifth of the world’s oil passes, remains effectively shut. Iran earlier this week said that the strait was open to all ships except those of the U.S. and its allies. 

Trump criticizes NATO over Strait of Hormuz

President Donald Trump on Tuesday criticized members of the North Atlantic Treaty Organization for not supporting his call for help on reopening the strait.

"We no longer ’need,’ or desire, the NATO Countries’ assistance — WE NEVER DID!" Trump said on his Trump Social service. He later told reporters that he was "disappointed" in NATO.  

While the U.K. and France have suggested that they would be open to discussing options with Washington, several U.S. allies have rebuffed Trump’s call, including Germany and Japan.

Trump previously suggested that the U.S. would not need any aid in restarting tanker traffic through the strait, although he said "numerous countries" had told him that "they’re on the way" to providing help.   

Brent creeps higher above $100 a barrel

Brent oil futures were last up 3.4% to $103.64 a barrel, while West Texas Intermediate crude futures rose 3.3% to $95.47 a barrel. Oil prices have spiked by more than 40% since the start of the joint U.S.-Israeli bombardments on Iran in late February.

Early on Tuesday, a projectile hit a tanker anchored close to a port in the United Arab Emirates, the New York Times reported. Citing the United Kingdom Maritime Trade Operations Center, the paper said the ship, which was near the port of Fujairah at the southern end of the strait, had only minor damage.

Officials in the UAE also said that a drone had been the cause of a fire at a key oil industry hub, exacerbating fears over already constrained global supplies. 

The prospect of a prolonged conflict in Iran has fueled worries over an energy shock that could drive up inflationary pressures around the world.

Ed Bastian, CEO of Delta Air Lines, told CNBC that the U.S. carrier had lifted some air fares to offset fuel costs which have doubled since the start of the first quarter. But shares of Delta ended nearly 7% higher after the group said it expects earnings per share to be within its prior guidance range, citing strong revenue.

Faced with fresh inflation fears, a raft of other major central banks, including the Federal Reserve, European Central Bank, and the Bank of Japan, are also set to meet this week. 

"[C]entral banks face a complex balancing act," Lukman Otunuga, senior market analyst at FXTM, told Investing.com. "Conflict-driven inflation risks could force policymakers to reassess their outlook for 2026, especially as markets rapidly dial back expectations for interest rate cuts. With major central bank decisions due this week, traders should brace for heightened volatility across equities, commodities and currencies.”

Trump asks for Xi meeting delay

Elsewhere, Trump has asked that a planned meeting with Chinese counterpart Xi Jinping next month be postponed, just days after he threatened such a delay should Beijing not use its influence with Iran to help reopen the strait.

Over the weekend, Trump called on China to send its navy to secure the Strait of Hormuz, a major waterway south of Iran through which roughly a fifth of the world’s oil supply flows.

Yet China, which buys oil from Iran, appears to have little incentive to heed Trump’s demand. Tehran has allowed Chinese tankers to traverse the strait, even as it has warned of attacks on any vessel carrying goods that may benefit the U.S. or its allies.

DocuSign, Lululemon Athletica to report

Beyond Iran, investors will be keeping tabs on earnings reports from digital contract signing platform DocuSign and athleisure retailer Lululemon Athletica after the closing bell on Wall Street.

Semiconductor giant Nvidia’s meeting with analysts during its ongoing developers conference will also be in focus. On Monday, CEO Jensen Huang projected that Nvidia would notch $1 trillion in artificial intelligence chip sales by the end of 2027, compared to the $500 billion outlined for the current year.

Huang also delivered a rosy outlook for so-called AI inference, saying this computing, which allows these models to quickly and efficiently respond to user questions, "is the AI future."

Scott Kanowsky contributed to this article