Stocks rally and oil tumbles as Wall Street hopes for a limited retaliation after US strikes on Iran

NEW YORK (AP) — U.S. stocks rallied, and the price of oil tumbled Monday on hopes that Iran will not disrupt the global flow of crude, something that would hurt economies worldwide but also its own, following the United States’ bunker-busting entry into its war with Israel.

The S&P 500 climbed 1%, coming off a week where stock prices had jumped up and down on worries about the conflict potentially escalating. The Dow Jones Industrial Average added 374 points, or 0.9%, and the Nasdaq composite gained 0.9%.

The price of oil initially jumped 6% after trading began Sunday night, a signal of rising worries as investors got their first chance to react to the U.S. bombings. But it quickly erased all those gains and swung to a sharp loss as the focus shifted from what the U.S. military did to how Iran would react.

By late Monday, the price of a barrel of benchmark U.S. oil had dropped 7.2% to settle at $68.51 after briefly topping $78. That brought it nearly all the way back to where it was before the fighting began over a week ago, when it was sitting just above $68.

The losses accelerated sharply after Iran announced a missile attack on Al Udeid Air Base in Qatar, which the U.S. military uses. Iran said it matched the number of bombs dropped by the United States on Iranian nuclear sites this past weekend, which could be a signal of a desire to deescalate the conflict.

Perhaps most importantly for financial markets, Iran’s retaliation did not seem to target the flow of oil. The fear throughout the Israel-Iran war has been that it could squeeze the world’s supply of oil, which would pump up prices for it, gasoline and other products refined from crude.

Iran is a major producer of crude, and it could also try to block the Strait of Hormuz off its coast, through which 20% of the world’s daily oil needs passes on ships.

Several analysts said Iran would likely not close the waterway because Iran itself uses the strait to move its own crude, mostly to China, and it needs the revenue made from such sales of oil.

“It’s a scorched earth possibility, a Sherman-burning-Atlanta move,” said Tom Kloza, chief market analyst at Turner Mason & Co. “It’s not probable.”

Neil Newman, managing director of Atris Advisory Japan, said hope remains that the Israel-Iran war could be a short conflict, with the thinking being “the one big hit by the Americans will be effective and then we’ll get back to sort of business as usual, in which case there is no need for an immediate, panicky type of reaction.”

Of course, not everyone is sure about Iran’s next move.

Andy Lipow, a Houston analyst covering oil markets for 45 years, said countries are not always rational actors and that he wouldn’t be surprised if Tehran lashed out for political or emotional reasons.

“If the Strait of Hormuz was completely shut down, oil prices would rise to $120 to $130 a barrel,” said Lipow.

“It would mean higher prices for all those goods transported by truck, and it would be more difficult for the Fed to lower interest rates.”

The Federal Reserve has been hesitant to cut interest rates this year because it’s waiting to see how much President Donald Trump’s tariffs will hurt the economy and raise inflation.

Inflation has remained relatively tame recently, but a rise in oil and gasoline prices would put upward pressure on it. That in turn could keep the Fed on hold because cuts to rates can fan inflation higher, along with giving the economy a boost.

In the bond market, Treasury yields eased after Fed Gov. Michelle Bowman said she would support cutting rates at the Fed’s next meeting in just a month, as long as “inflation pressures remain contained.”

The yield on the 10-year Treasury fell to 4.33% from 4.38% late Friday. The two-year Treasury yield, which more closely tracks expectations for the Fed, dropped to 3.84% from 3.90%.

On Wall Street, Elon Musk’s Tesla was the single strongest force pushing the S&P 500 higher after jumping 8.2%. The electric-vehicle company began a test run on Sunday of a small squad of self-driving cabs in Austin, Texas. It’s something that Musk has long been touting and integral to Tesla’s stock price being as high as it is.

Hims & Hers Health tumbled 34.6% after Novo Nordisk said it will no longer work with the company to sell its popular Wegovy obesity drug. Novo Nordisk’s stock that trades in the United States fell 5.5%.

All told, the S&P 500 rose 57.33 points to 6,025.17. The Dow Jones Industrial Average added 374.96 to 42,581.78, and the Nasdaq composite gained 183.56 to 19,630.97.

In stock markets abroad, indexes fell modestly across Europe after finishing mixed in Asia. France’s CAC 40 sank 0.7%, and Hong Kong’s Hang Seng rose 0.7% for two of the world’s bigger moves.

Kurtenbach contributed from Bangkok. AP video journalist Mayuko Ono in Tokyo and AP Business Writer Matt Ott in Washington contributed.

Trader Leon Montana works on the floor of the New York Stock Exchange, Monday, June 23, 2025. (AP Photo/Richard Drew)

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Traders workon the floor of the New York Stock Exchange, Monday, June 23, 2025. (AP Photo/Richard Drew)

Trader Edward Curran works on the floor of the New York Stock Exchange, Monday, June 23, 2025. (AP Photo/Richard Drew)

Trader Ryan Falvey works on the floor of the New York Stock Exchange, Monday, June 23, 2025. (AP Photo/Richard Drew)

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Trader Drew Cohen works on the floor of the New York Stock Exchange, Monday, June 23, 2025. (AP Photo/Richard Drew)

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A person walks in front of an electronic stock board showing Japan's Nikkei index at a securities firm Monday, June 23, 2025, in Tokyo. (AP Photo/Eugene Hoshiko)

A person walks in front of an electronic stock board showing Japan's Nikkei index at a securities firm Monday, June 23, 2025, in Tokyo. (AP Photo/Eugene Hoshiko)

A person walks in front of an electronic stock board showing Japan's Nikkei index at a securities firm Monday, June 23, 2025, in Tokyo. (AP Photo/Eugene Hoshiko)

The "Fearless Girl" statue stands in front of the New York Stock Exchange, Wednesday, June 18, 2025, in New York. (AP Photo/Yuki Iwamura)

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WASHINGTON (AP) — President Donald Trump said he’s dropping — for now — his push to deploy National Guard troops in Chicago, Los Angeles and Portland, Oregon, a move that comes after legal roadblocks held up the effort.

“We will come back, perhaps in a much different and stronger form, when crime begins to soar again - Only a question of time!" he said in a social media post Wednesday.

Governors typically control states' National Guardsmen, and Trump had deployed troops to all three cities against the wishes of state and local Democratic leaders. He said it was necessary as part of a broader crackdown on immigration, crime and protests.

The president has made a crackdown on crime in cities a centerpiece of his second term — and has toyed with the idea of invoking the Insurrection Act to stop his opponents from using the courts to block his plans. He has said he sees his tough-on-crime approach as a winning political issue ahead of next year’s midterm elections.

Troops had already left Los Angeles after the president deployed them earlier this year as part of a broader crackdown on crime and immigration.

In his post, Trump said the troops' presence was responsible for a drop in crime in the three cities, though they were never on the streets in Chicago and Portland as legal challenges played out. When the Chicago deployment was challenged in court, a Justice Department lawyer said the Guard’s mission would be to protect federal properties and government agents in the field, not “solving all of crime in Chicago.”

Portland Mayor Keith Wilson’s office in a statement said the city’s reduction in crime was due to the efforts of local police and public safety programs. Chicago officials echoed the sentiment, saying in a release Tuesday that the city had 416 homicides in 2025 — the fewest since 2014.

Trump’s push to deploy the troops in Democrat-led cities has been met with legal challenges at nearly every turn.

The Supreme Court in December refused to allow the Trump administration to deploy National Guard troops in the Chicago area. The order was not a final ruling but was a significant and rare setback by the high court for the president’s efforts.

Illinois Gov. JB Pritzker wrote on X Wednesday that Trump “lost in court when Illinois stood up against his attempt to militarize American cities with the National Guard. Now Trump is forced to stand down.”

Hundreds of troops from California and Oregon were deployed to Portland, but a federal judge barred them from going on the streets. A judge permanently blocked the deployment of National Guard troops there in November after a three-day trial.

Oregon Gov. Tina Kotek said in a statement Wednesday that her office had not yet received “official notification that the remaining federalized Oregon National Guard troops can return home. They were never lawfully deployed to Portland and there was no need for their presence. If President Trump has finally chosen to follow court orders and demobilize our troops, that’s a big win for Oregonians and for the rule of law.”

Trump's decision to federalize National Guard troops began in Los Angeles in June, when protesters took to the streets in response to a blitz of immigration arrests in the area. He deployed about 4,000 troops and 700 Marines to guard federal buildings and, later, to protest federal agents as they carried out immigration arrests.

The number of troops slowly dwindled until just several hundred were left. They were removed from the streets by Dec. 15 after a lower court ruling that also ordered control to be returned to Gov. Gavin Newsom. But an appeals court had paused the second part of the order, meaning control remained with Trump. In a Tuesday court filing, the Trump administration said it was no longer seeking a pause in that part of the order.

The U.S. Court of Appeals for the Ninth Circuit on Wednesday ordered the Trump administration to return control of the National Guard to Newsom.

“About time (Trump) admitted defeat,” Newsom said in a social media post. “We’ve said it from day one: the federal takeover of California’s National Guard is illegal.”

Troops will remain on the ground in several other cities. The U.S. Court of Appeals for the District of Columbia Circuit in December paused a lower court ruling that had called for an end to the deployment of National Guard troops in Washington, D.C., where they’ve been deployed since August after Trump declared a “crime emergency.”

Trump also ordered the deployment of the Tennessee National Guard to Memphis in September as part of a larger federal task force to combat crime, a move supported by the state’s Republican Gov. Bill Lee and senators. A Tennessee judge blocked the use of the Guard, siding with Democratic state and local officials who sued. However, the judge stayed the decision to block the Guard as the state appeals, allowing the deployment to continue.

In New Orleans, about 350 National Guard troops deployed by Trump arrived in the city's historic French Quarter on Tuesday and are set to stay through Mardi Gras to help with safety. The state's Republican governor and the city's Democratic mayor support the deployment.

Ding reported from Los Angeles. Associated Press reporters John O'Connor in Springfield, Illinois, Becky Bohrer in Juneau, Alaska, Jack Brook in New Orleans and Adrian Sanz in Memphis contributed.

FILE - A protester confronts a line of U.S. National Guard members in the Metropolitan Detention Center of downtown Los Angeles, Sunday, June 8, 2025. (AP Photo/Eric Thayer, File)

FILE - Protesters stand off against California National Guard soldiers at the Federal Building in downtown Los Angeles, during a "No Kings" protest, June 14, 2025. (AP Photo/Richard Vogel, File)

President Donald Trump speaks during a news conference with Israel's Prime Minister Benjamin Netanyahu at Mar-a-Lago, Monday, Dec. 29, 2025, in Palm Beach, Fla. (AP Photo/Alex Brandon)