For most of the week, markets have traded as if the Iran war were over. The S&P 500 set a third straight record high while the Nasdaq Composite is on its longest winning streak since 1992. Hope for Middle East ceasefires and oil flow via the Strait of Hormuz fuels the stock market’s optimism. The worst of the oil interruption may be over and the battle controlled, reducing global economic consequences and making central banks more prepared. As oil prices fell from above $100 per barrel and the US and Iran entered a ceasefire, Wall Street’s fortunes shifted. The Iranian foreign minister declared the Strait of Hormuz “completely open” for commercial transportation during the ceasefire, sending oil prices plummeting and equities rising Friday.
Brent crude sank 9.07% to $90.38, its lowest level since March 10. The Dow rose 869 points, or 1.79%, recouping all losses since the Iran war. President Donald Trump announced a 10-day ceasefire between Israel and Lebanon on Thursday. With Trump promising to maintain the US naval blockade, the stock market is ignoring the war’s duration and result and the Strait of Hormuz’s fate. The S&P 500 enjoyed its greatest week since May after a remarkable weekslong rally. The benchmark index has risen more than 12% since March 30, recovering Iran war losses and building on gains. The stock market is up because to relief about the ceasefire, oil price drops, robust earnings season projections, and tech stock resurgence. “The bar for positive surprises was reset lower, and the market and investors were braced for oil prices to be higher than they are now,” Keith Lerner told. “Even though there’s not full clarity at this point, there’s a pathway, or credible signals, that we’re moving toward de-escalation,” he said. “That little bit of good news has gone far.”
The robust rally this month is partly due to technical issues. Market behavior like “forced buying,” when algorithms buy stocks when volatility drops, fueled the strong bounce. How the US stock market has moved in the past year has contributed to the market’s persistent push higher. Wall Street traders purchase the drop in anticipation that Trump will back off his riskiest policies if the markets tumble, providing a guardrail and signal to buy. The battle with Iran has complicated that plan since Trump can’t just walk away, or TACO, if the Iranians seal the strait. Over the past few weeks, Trump has signaled that hostilities are ending, including pulling off Iran strikes. Buying the dip and joining the rally has been profitable whether traders believe it’s the end of the dispute or not. “It’s momentum,” said Steve Sosnick. It’s almost a feeding frenzy. Nobody wants to miss out. FOMO is confusing since the F is clearly ‘fear,’ but it’s actually ‘greed.’” Sosnick said “Even if things get moving, there’s production capacity destroyed.” The market has concluded that we are all alright. Fear and Greed Index, a market emotion indicator, fell into “extreme fear” in March before rebounding sharply to “greed” on Friday. Stock market traders are taking risks while oil prices remain above pre-war levels. Wall Street is also experiencing corporate earnings season. About 10% of S&P 500 businesses have reported, and 88% have surprised on earnings per share. Corporate America’s strong revenue boosts the market.
AI sentiment deteriorated for six months. Now, with fresh confidence that the vast data center buildout has robust processing power demand and lots of capacity to operate, things are improving. This is helping markets rise, with the Nasdaq achieving its first record high since late October. S&P 500 closed above 7,100 points for the first time Friday after finishing above 7,000 on Wednesday. The market’s quick recovery from its lows may be missing hazards, said Kristina Hooper. “The stock market clearly has a desire, almost a gravitational pull upwards, and it’s willing to look through any kind of negative data or developments and seize on that which appears positive, or the kernels of positive data and development, and move higher,” Hooper said. “Affordability is becoming a bigger issue every day that gas prices are higher,” Hooper added. The gap between Main Street and Wall Street is growing.