From geopolitical shock to market stress
The end of March was brutal for United States (US) equity markets, with both the S&P 500 and the Nasdaq 100 shedding roughly 5%.
The primary catalyst for that decline was an escalation in geopolitical tensions following Iran’s refusal to reopen the Strait of Hormuz. This standoff prompted President Trump to issue a strict 48‑hour ultimatum, threatening to obliterate Iranian power plants, ‘starting with the biggest one first’.
While concerns eased marginally after that deadline was pushed back into early April, the underlying reality remained grim. With the Strait effectively closed and key energy producers forced to shut supply due to drone strikes or maxed‑out storage facilities, all the ingredients were in place for an escalation capable of completely derailing the bull market.
Then came what appeared to be a breakthrough, a two‑week ceasefire ahead of formal peace talks. Unfortunately, that initial optimism faded when weekend negotiations ended in frustration without a signed agreement.
In response, the US President played what we described earlier this week as his ‘Trump Card’, a US naval blockade of the Strait targeting Iranian ports. This aggressive tactic appears to have forced the issue, paving the way for another round of talks in Pakistan this coming weekend.
Markets look through the noise
This dizzying sequence of events in April has culminated in a spectacular market rally. The Nasdaq has now risen for 10 consecutive sessions, marking its longest winning streak since late 2021, while the S&P 500 closed overnight more than 10% above its March low of 6316.
While the situation in the Strait of Hormuz remains extremely tense, markets are, by their very nature, forward‑looking. At present, equities are actively pricing in the end of this geopolitical chapter rather than dwelling on the current stalemate.
Take the nuclear negotiations, for example. Iran appears prepared to halt uranium enrichment for five years, whereas the US is demanding 20. A compromise somewhere in the middle, perhaps around the ten‑year mark, feels realistic and within reach.
Once a nuclear agreement is reached and normal traffic resumes through the Strait, the US administration can comfortably pivot. It could declare a major foreign‑policy victory -pointing to significant wins like the recent regime change in Venezuela alongside a new Iranian nuclear deal – before turning its attention towards stimulating the domestic economy and pushing for Federal Reserve (Fed) rate cuts ahead of the mid‑term elections.
Couple that forward‑looking outlook with the ongoing strength of the artificial intelligence (AI) trade heading into reporting season, and it becomes apparent why sentiment has shifted so rapidly. Naturally, this blistering rally has also raised the bar significantly around valuations and for what will qualify as a ‘good’ set of earnings results.
It has been a remarkable 10 days for US equities. While a short‑term pause would not be surprising ahead of record highs, the path of least resistance remains firmly higher.
www.ig.com