18/04/26, Trump Claims

Traders spent this week betting that the US conflict with Iran is all but over — driving stocks to records, dumping the dollar and pushing oil to around $90 a barrel.

A ceasefire between Israel and Hezbollah in Lebanon and Iran's decision to reopen the Strait of Hormuz to commercial shipping sent risky assets surging anew on Friday, extending a rally that pushed the S&P 500 to a fresh record and fueling its biggest monthly advance since 2020.

Donald Trump signalled that an Iran peace deal was all but done, trumpeting agreements on the Strait of Hormuz and Tehran's nuclear program.

In a rapid-fire stream of social media posts, Trump hailed a "GREAT AND BRILLIANT DAY FOR THE WORLD!" but without specifically announcing a deal with Iran.

The celebratory tone continued with a series of shout-outs to mediator Pakistan and Gulf allies -- and a rebuke to NATO to "STAY AWAY" as he rejected an offer from the Western alliance to help secure the strait.

President Donald Trump said Iran had agreed to suspend its nuclear program indefinitely and that a deal to end the war is mostly complete, with talks likely this weekend. Iran has yet to confirm any agreement.

Bank of America Corp.'s cross-market risk gauge, which measures turbulence priced across global equities, rates, currencies and commodities, is headed for its second-fastest monthly drop on record, with only the early pandemic recovery declining faster.

The S&P 500 took just three weeks to rally from its war low to an all-time high. The dollar on Friday briefly erased all of its war-fueled gains. Yet the damage from seven weeks of conflict will take far longer to undo.

The Strait of Hormuz was closed for most of the conflict, crude prices are still materially higher than their pre-war levels, and global food supply chains that depend on the waterway remain disrupted. Inflation expectations have shifted and central banks have been forced to delay interest-rate cuts. And none of that reverses even if a peace deal is signed this weekend.

“The markets think that the most likely outcome is gradual de-escalation, but there are very fat tails. This is a legitimate inflation spike,” said Daniel Ivascyn, group chief investment officer at Pacific Investment Management Co.

Also fueling the rush: the fear of being left behind after the rebound in animal spirits witnessed last year when President Donald Trump walked back the fiercest of his global tariffs. Burned by that experience, traders are front-running a full recovery before the damage to supply chains, energy infrastructure and consumer confidence has begun to reverse. Commodity trading advisers who had been positioned short equities were forced to flip long and chase the rally.

The S&P 500 posted a third straight week of gains exceeding 3%. Global stocks also set all-time highs. The rebound from the late-March low to a record happened faster than any recovery of that magnitude, according to Asym 500's Rocky Fishman.

The rally hasn't been driven by peace optimism alone. Resiliency in the US economy, a stronger-than-expected earnings season and excitement around artificial intelligence demand have all provided independent momentum. S&P 500 earnings growth for 2026 has been revised up almost three percentage points, with profit momentum expected to build this year, according to Marcella Chow, a global market strategist at JPMorgan Asset Management.

“Even if conflict-related effects were to reduce EPS growth by mid-single digits, that would still imply the potential for double-digit earnings growth,” she added.

Profit forecasts for emerging-market companies are also hitting record highs, with analysts raising estimates for companies in the MSCI emerging equity index by 23%, the fastest pace since 2009. Forecasts continued to climb even after the war broke out, according to data compiled by Bloomberg.

Hedge funds have piled into bearish positions on the dollar, and the Bloomberg Dollar Spot Index on Friday briefly erased all its gains from the war. Having lured investors seeking safety since February, the currency's reversal is among the sharpest signals of the shift in sentiment.

But the bond market is less convinced. Shorter-dated government bonds have been among the most volatile assets in recent weeks, with two-year Treasury yields rising about 30 basis points since the start of the war and equivalent UK gilts climbing around 60 basis points. Before the war, traders were pricing in multiple Fed rate cuts this year. Now they see about a 60% chance of just one.

“There is pretty much no risk premium priced into financial markets outside of some at the front end of rates,” said Andrew Chorlton, chief investment officer for fixed income at M&G Investments. “Inflation expectations past a year or two — there's no risk priced now.”

Then there is oil — the asset class where the gap between market optimism and physical reality has been the widest. Futures have plunged but the real-world cost of crude remains elevated, reflecting disrupted shipping routes, elevated tanker rates and depleted inventories that analysts say will take weeks if not months to normalize.

Some money managers see an opportunity in the uncertainty itself. Mark Dowding, chief investment officer for fixed income at RBC BlueBay Asset Management, said he has started buying inflation-linked bonds in Europe — a bet that yields have risen enough to be attractive on their own, with the added benefit of protection if inflation overshoots again.

There is a reason for the confidence. Markets have developed a reflex over the past decades to fade every geopolitical event, and it has been right almost every time, according to Maxence Visseau, founder of Arkevium, an investment firm specializing in macro trading strategies. When Russia invaded Ukraine in February 2022, global stocks settled down just 0.6% on the day and the S&P 500 gained 1.5%. The two notable exceptions — 1973 and 1990 — both involved a sustained oil supply disruption.

Whether this war joins that short list depends on what happens in the next few weeks. As Laura Cooper, head of macro credit at Nuveen, which oversees $1.4 trillion in assets, put it: “The real mispricing in markets is treating this as over when the underlying vulnerabilities remain.”

source: Network18, Social Media