U.S. stocks staged a late-session rebound on Tuesday as markets reacted to escalating tensions in the Middle East and a fast-approaching deadline set by President Donald Trump for Iran to reopen the Strait of Hormuz.

The S&P 500 and Nasdaq Composite both managed to close slightly higher after recovering in the final hour of trading, while the Dow Jones Industrial Average slipped 0.2%, giving back earlier gains.

Investors remained on edge throughout the day, closely watching developments surrounding a potential ceasefire. Trump’s deadline for Iran to restore access to the critical shipping route was set to expire Tuesday evening, heightening uncertainty across global markets.

Momentum shifted in the afternoon after Pakistan proposed a two-week extension to the deadline, raising hopes for a diplomatic off-ramp and easing fears of further escalation. Earlier in the day, however, markets were rattled after Trump warned on social media of severe consequences if tensions continued to rise.

At the same time, reports indicated that U.S. forces had carried out strikes on military targets near Kharg Island, a key hub for Iran’s oil exports, adding to concerns about potential supply disruptions.

Oil prices reflected the volatility. U.S. benchmark West Texas Intermediate crude initially surged before pulling back slightly, hovering just above $110 per barrel. Brent crude, the global benchmark, also declined after earlier gains, as investors weighed the likelihood of negotiations easing the conflict.

By the close, equities had stabilized following a choppy trading session, supported by renewed optimism that diplomatic efforts could prevent a broader crisis.

Still, uncertainty remains high. Federal Reserve officials warned that a prolonged energy shock could fuel inflationary pressures, with Chicago Fed President Austan Goolsbee cautioning that rising oil prices could trigger a stagflationary environment if not contained.