Stocks recovered from an earlier drop on Monday amid investor hopes that the U.S. and Iran could ease tensions despite an American military blockade on the Strait of Hormuz.

Stocks rebounded throughout the day after opening in the red. The S&P 500 rose 69 points, or 1%, to close at 6,886, while the Dow Jones Industrial Average added 302 points, or 0.6%. The tech-heavy Nasdaq Composite gained 1.2%.

Oil prices also fell after trading above $100 a barrel most of the day. The price of Brent crude, the international benchmark, rose 3.1%, or $2.96, to $98.16 a barrel, according to Oilprice.com. West Texas Intermediate, the U.S. benchmark, increased 1.3%, or $1.25, to $97.82 a barrel.

Ship traffic in the Strait of Hormuz, which carries roughly 20% of the world's oil and gas supply, has been significantly curtailed since the war began in late February. In April, an average of about 10 ships passed through the Strait each day, far below the roughly 129 ships that traveled through the waterway in the month before the war, marine transit data shows.

Despite the blockade, Mark Luschini, chief investment strategist at Janney Montgomery Scott, told CBS News that investors continue to assume that the sides will soon find an off-ramp and avoid further escalation. 

"I think investors realize that this is probably a little bit more brinkmanship than necessarily the start of a significant re-escalation of the war, given the fact that we're still theoretically in the midst of this two-week ceasefire in which negotiations still have a chance of coming back together," he said.

Officials told CBS News Monday there is continued engagement between the U.S. delegation and Iran's leaders, with one noting there's "forward motion on trying to get to an agreement."