I like to be optimistic but I'm worried that today's price action in markets is more about positioning than a re-reading of the fundamentals of the war in Iran.
To my eye, the comments from both Trump and Iran haven't really changed much. The bombs are continuing to fly and there are some serious red lines that can only be solved with real negotiations. Trump seems to be in more of a public relations spin campaign and it looks like the US will walk away, declare victory and say "Hormuz is your problem".
From there, we don't know what Iran will do. Perhaps the threat from Trump at that point will be 'if you bomb another ship' we will destroy your energy. Maybe that works, maybe it doesn't. This certainly doesn't look headed towards some kind of firm hand-shaking deal that leaves anyone with confidence for a lasting peace. Within Iran, it's not even clear who is making the decisions.
The great piece of news today was that China was confirmed to be involved and given its need for Iran's energy, they can act as a real broker here.
But it's the biggest one-day rally in stocks since March with the S&P 500 up 2.8% and the Nasdaq up 3.75%. Those are huge numbers and I can't shake the feeling that quarter-end flows are a big part of that picture.
Now if I remember back to March 2020, there was a similar sentiment then are big bids came in at the end of what had been the worst month for equities in many years. Plenty of people were convinced to fade that strength but it didn't stop in April and continued through 2022. Oftentimes, once the psychology of the market flips back to 'buy the dips', there is simply no fighting it.
So while some cautious is warranted and the oil market needs to be watched closely, there is room for optimism. We will be watching very carefully tomorrow and unless there's a deal soon, I'd expect some pain as we get close to Thursday's close (it's a long weekend) and the potential for catastrophic escalation when Trump's deadline hits on April 6.
