U.S. stocks closed sharply higher Wednesday after a last-minute, two-week ceasefire agreement between the United States and Iran lifted investor sentiment.

All three major U.S. stock indexes surged at the opening bell, muscled higher by a broad relief rally after a deal brokered by Pakistan resulted in a two-week suspension of the war.

The conflict, which began with joint U.S.-Israeli strikes on Iran on February 28, has sent world markets reeling, disrupted global oil supply and sparked fears of rising inflation.

A senior Iranian official told Reuters that the crucial Strait of Hormuz, through which one-fifth of the world's oil is shipped, could be reopened on Thursday or Friday ahead of peace talks if the countries agreed upon a framework for the ceasefire.

"It’s an expected move today and there's still a lot of work to do, but I think the market is quite relieved," said Mike Dickson, head of portfolio management at Horizon Investments in Charlotte, North Carolina.

"The other side of this coin could have been a lot worse and frankly there's a good reason to think that it was possible too. So you're seeing that relief rally in the hardest-hit areas of the market."

Economically sensitive Dow Transports touched an all-time high, while the Russell 2000 outperformed its larger-cap peers. The rally was not confined to U.S. indexes. European shares rose 3.9%, while MSCI's World index was up over 3%. Both indexes logged their biggest one-day percentage gains in a year.

"Most other countries were more exposed to an energy shock and a food shock than the U.S.," said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. "So this is a much bigger near-term relief for international stocks."

The CBOE Market Volatility index, a barometer of investor anxiety, dipped to its lowest level since the beginning of the war.

Front-month WTI and Brent crude futures fell 16.4% and 13.3%, respectively, both settling below $100 per barrel.

Minutes from the U.S. Federal Reserve's March meeting, released on Wednesday, showed a growing openness to rate hikes as policymakers raised their 2026 inflation outlook due to war-related oil shock.

According to preliminary data, the S&P 500 gained 166.63 points, or 2.52%, to end at 6,783.48 points, while the Nasdaq Composite gained 620.05 points, or 2.82%, to 22,637.90. The Dow Jones Industrial Average rose 1,329.56 points, or 2.85%, to 47,914.02.

Sectors that have suffered a beating since the war began, including commercial airlines, travel and leisure-related stocks and homebuilders , enjoyed robust bouncebacks. Delta Air Lines rose, despite its disappointing second-quarter profit forecast. The commercial air carrier declined to update its annual outlook due to uncertainties related to the Iran war.

Delta peers Southwest Airlines and United Airlines also advanced.

Cruise operators Carnival and Norwegian Cruise Line both notched robust gains. Levi Strauss jumped after the apparel maker raised its annual sales and profit forecasts.