President Trump announced on Tuesday, just hours before the ceasefire agreement was set to expire, that the two-week pause in hostilities with Iran would be extended indefinitely. Analysts suggest that markets now perceive the worst-case scenario of the conflict as largely over. However, the possibility of a significant near-term recovery in oil flows through the Strait of Hormuz remains slim. Continued supply constraints are clouding the global growth outlook.
The announcement from Trump, which cited the need to advance negotiations, alleviated concerns about an imminent resumption of U.S. strikes, but the overall investor reaction was muted. Asian stocks were mixed overnight, European markets edged higher, and U.S. stock index futures saw modest gains. The prices of international benchmark Brent crude and W&T Offshore (WTI) futures experienced sharp volatility following Trump's announcement. As of 4:52 a.m. ET, they were trading at $99.81 and $90.86 per barrel, respectively. Prices remain elevated as Trump insists on maintaining the blockade of the Strait of Hormuz.
Brian Stutland, Chief Investment Officer at Equity Armor Investments, stated in an interview:
"What the market is really doing is trying to look past the Iran situation, assuming it will gradually de-escalate on its own. This may take time, but we are moving closer to the end of this episode rather than the beginning—it's time to turn the page."
**Return to Fundamentals** The Strait of Hormuz remains blocked. As long as the blockade persists, oil supplies will be severely constrained, thereby increasing inflationary pressures and weighing on the global growth outlook. Nevertheless, global stock markets have recovered to their pre-conflict levels. The MSCI World Index has erased its post-conflict 3.29% decline and is up nearly 2% from March 2, the first trading day after the conflict began. Despite the unresolved situation, investors have been unwinding their geopolitical risk hedges.
Ray Farris, Chief Economist at Prudential Investment, commented:
"The market's view is that the worst-case scenario for this war has most likely passed." He added that investors had anticipated Trump would find a way to extend the ceasefire. "We are now pricing out all the 'tail risks'—the worst-case scenarios like oil spiking to $200 a barrel—recalibrating the distribution of price expectations, and refocusing on corporate earnings."
Grace Peters, Co-Head of Global Investment Strategy at J.P. Morgan Private Bank, noted that investors are **"refocusing on fundamentals"** and that **"the bar for re-escalation of the conflict has been raised."**
"Clearly, we are at a critical point in the earnings season," she added. The S&P 500's price-to-earnings ratio is below its five-year average as companies begin to report. "The combination of valuation opportunities and earnings catalysts is clearly driving the market higher. We have repeatedly seen the pattern with geopolitics: a single event does not inflict lasting damage on markets, and recovery is usually quite swift." "We consistently advise clients not to overreact to any single event... and not to underestimate the underlying dynamics."
Luis Costa, Global Head of EM Strategy at Citi, observed a similar trend.
"I would call it 'residual optimism'," he said. "Prior to the conflict, we were in an environment where... earnings revisions in emerging markets were far outpacing those in developed markets. "I believe that logic still holds for broader emerging market assets."
**Inventories at Risk** The prospects for peace talks remain uncertain. A planned trip by U.S. Vice President JD Vance to Pakistan for a second round of talks with Iranian officials has reportedly been postponed after Tehran's negotiators refused to participate.
Damien Courvalin, Co-Head of Global Commodities Research at Goldman Sachs, stated:
"The ceasefire extension means the probability of a significant escalation damaging energy infrastructure has not increased." "The negative, however, is that the longer this supply disruption lasts, the more global inventories are drawn down. And inventories cannot be drawn down indefinitely." "This is a broad and intense commodity shock—and the problem for policymakers is that they do not have full control over its duration."
Courvalin expects Brent crude prices to hover around $80 per barrel by year-end—approximately $20 higher than forecasts made before the Strait of Hormuz crisis.
Comments