Missiles are still flying and the strait remains closed, but markets have decided to celebrate anyway. However, amidst the widespread cheers, some investors have already begun quietly reducing their positions.
On April 8, Eastern Time, news of a ceasefire agreement between the US and Iran triggered a sharp reaction across global financial markets. The Dow Jones Industrial Average surged 2.8%, or approximately 1,325 points, marking its largest single-day gain in over a year. The S&P 500 rose 2.5%, and the Nasdaq Composite climbed 2.8%.
Major stock indices in Europe and Asia also posted gains exceeding 2%.
Simultaneously, the benchmark US oil price plummeted by 16% in a single day to $94.41 per barrel. This was the largest daily decline since the COVID-19 pandemic and the most significant drop since the 1991 Gulf War.
However, this rally was accompanied by unease from the outset. The ceasefire agreement is only valid for two weeks, shipping traffic through the Strait of Hormuz remains sluggish, and reports of potential ceasefire violations emerged multiple times during the trading session. Statements from Israeli Prime Minister Benjamin Netanyahu claiming "this is not the end of the war" and Iranian officials alleging violations of the agreement caused stock indices to retreat significantly from their intraday highs. Final closing gains were substantially lower than the levels suggested by pre-market futures.
Phil Blancato, Chief Market Strategist at Osaic, stated, "There is a pent-up demand in the market for even a sliver of good news." However, several market participants concurrently warned that whether the ceasefire holds and whether the strait truly reopens for navigation remain the biggest uncertainties.
The logic behind the rebound appears to be driven more by short covering and sentiment release than by fundamental improvements. According to data from Goldman Sachs' trading desk, overall market activity was 70% higher than the two-week average, but the intensity of short covering fell short of market expectations. Rich Privorotsky, Head of Delta-One Trading at Goldman Sachs, noted that prior market positioning was characterized by high gross exposure but low net exposure, with investors holding excessive index hedges. This created a large volume of futures short positions that needed to be covered, serving as the primary fuel for the rebound.
Mechanical buying from CTA strategies also commenced, with volatility compression acting as a tailwind. Data from SpotGamma indicated a significant concentration of positive Gamma, around $10 billion, near the 6,800 level for the S&P 500, a level historically in the 85th percentile. This structure helped propel the index higher rapidly but also creates resistance for further significant gains.
Goldman's trading desk observed that long-only funds were the main buyers during the session, with net buying intensity ranking in the 87th percentile historically, concentrated particularly in technology and macro products. Hedge funds exhibited more balanced activity, even reducing exposure in sectors like technology and energy.
At the sector level, the rally displayed a distinct reversal of the previous "wartime logic." Economically sensitive sectors rallied strongly: industrials, consumer discretionary, and homebuilders all posted substantial gains. Sandisk Corp. surged 9.9%, United Airlines climbed 7.9%, and the Dow Jones Transportation Average hit a record high. The Goldman Sachs TMT Momentum basket registered a 10% gain, its largest single-day increase ever, closing at a historical peak.
Conversely, the energy sector experienced a sharp reversal. Shares of companies like ExxonMobil, Apache, and Cheniere declined, with US fertilizer producer CF Industries falling 5.7%. Goldman data showed a basket tracking semiconductors relative to software fell 8.5%, also a record daily move.
In bond markets, the ceasefire news initially triggered a sharp drop in global yields, as market pricing for central bank rate hikes scaled back significantly. However, selling pressure emerged during the US daytime session. The 30-year Treasury yield ultimately closed higher, and a 10-year Treasury auction saw weaker-than-expected results, including diminished foreign demand.
Internally at Goldman Sachs, views on the market move diverged sharply. Dominic Wilson, Chief Cross-Asset Strategist, had previously argued that historical precedent suggests equity market bottoms do not require a full resolution of a crisis, only a market perception that downside risks have been maximized. He cited the COVID-19 pandemic and trade tariff shocks as examples where markets bottomed before peak economic pressure. Wilson also noted that even if a full year of S&P 500 earnings were written off at current 25x P/E multiples, the market would only fall 4%, suggesting a "vague path to resolution" can trigger a rebound.
In stark contrast, Rich Privorotsky, Head of Delta-One Trading, judged that "chasing the rally at current levels is not a good trade." He views the move more as a technical rebound fueled by short covering rather than a fundamental improvement. With the S&P 500 having recouped about two-thirds of its recent decline and European indices appearing even more overextended, he estimated a "reasonable" gain would have been 2-3%, not the 5% actually recorded. Privorotsky's chosen action was to sell some long positions into the rally, not add to them.
The true test lies in the resumption of oil tanker traffic through the Strait of Hormuz. Iranian Foreign Minister Abbas Araghchi stated on social media that "within two weeks, and through coordination with the Iranian armed forces, considering technical limitations, safe passage through the Strait of Hormuz will be possible." Privorotsky interpreted this wording plainly: tankers would require approval via an Iranian "toll booth," and "technical limitations" imply throughput will be actively managed. He concluded this suggests supply will be sufficient to avoid escalation but insufficient for Iran to lose negotiating leverage, predicting international crude will stabilize around $90 rather than falling back to the $80s.
Reports indicate Persian Gulf shipping traffic remains well below pre-conflict levels. Neil Roberts of Lloyd's Market Association stated the likelihood of a simple return to normal traffic levels is extremely low. Clearview Energy Partners noted in a client report that oil's failure to fall further post-ceasefire news reflects "sticky fundamentals" and the agreement's own inherent uncertainties.
Technical analysis also raised cautionary flags. An analyst noted the S&P 500 triggered a rare technical event: a gap-up opening that broke above both its 50-day and 200-day moving averages simultaneously. Since 1950, this signal has occurred only four times, each followed by a significant pullback, with an average maximum drawdown of 9.51% over the subsequent three months. The analysis suggested this pattern has historically represented an "exhaustion gap" rather than the start of a sustainable rally.
Meanwhile, although the Cboe Volatility Index fell sharply, it remained above 20 and significantly higher than pre-conflict levels. Ben Emons, Chief Investment Officer at Fed Watch Advisors, commented, "This is a fragile setup that cannot be ignored. Market pricing suggests there is still hedging demand, or that the market is waiting for more clarity." Mark Hackett, Chief Market Strategist at Nationwide, stated bluntly, "This isn't something that gets solved by waving a magic wand."
Even if the ceasefire holds, accumulated economic pressures will not vanish. Oil prices remain approximately 60% higher than at the start of the year, posing a persistent drag on the US economy already facing stubborn inflation. CME FedWatch data showed traders now assign a 73% probability of no Fed rate cuts throughout 2026, a dramatic increase from just 4% before the conflict erupted.
Goldman's Wilson argued that current market pricing for monetary policy tightening is excessive. Historical experience suggests policy rates tend to rise modestly for 1-3 months after an oil supply shock but then decline over 6-9 months as growth concerns intensify. He believes inflation fears may prove overblown relative to downside growth risks and rising unemployment pressures.
Summarizing the situation, a Bloomberg strategist noted, "This is a transitional phase where the market is attempting to shift from escalation fears to patient negotiation-watching. Fund flows are dominating, fundamentals are secondary, and the scope for policy support is limited. This combination points towards a wide trading range, but at a lower level than before the Iran conflict."
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