After navigating weeks of geopolitical tension advisors and their clients are set to reap the benefits of a rebounding market at least in the near term as the U.S. and Iran agree to a two-week ceasefire that reopens the Strait of Hormuz to shipping.
Trump, who had earlier threatened to annihilate Iranian civilization, described the ceasefire as “a big day for World Peace,” in a post on his Truth Social network, and said that the U.S. will help deal with the buildup of shipping traffic in the Strait of Hormuz.
“Wall Street is exhaling as President Trump pressed pause on the destruction button, as there are enough signs that there's a will to negotiate a deal, and that optimism is helping to end this stock market correction,” said Robert Edwards, chief investment officer, Edwards Asset Management, in a statement. “Even though there is still uncertainty over how durable this ceasefire is, stocks can still move higher even without all of the details ironed out.”
These sentiments were echoed by Jeff Buchbinder, chief equity strategist for LPL Financial. "Stocks clearly want to move past this conflict and go higher," he said, in a statement. "Strong fundamentals can shine through when geopolitical clouds clear."
Stock futures are climbing Wednesday, with S&P 500 contracts up 2.6% and the Dow Jones Industrial Average Futures also climbing 2.6%.
“This market was already coiled even before the de-escalation of tensions between the U.S. and Iran, as earnings are about to take the stage,” said Edwards, noting that the latest jobs report showed real improvement. “With President Trump's midterm election incentives pointing squarely at cheaper gas and a stronger economy, we see record highs in stocks by early fall,” he added.
Oil prices, which have skyrocketed as a result of the conflict, are tumbling Wednesday, with Brent crude futures down more than 14% and West Texas Intermediate crude futures down more than 16%.
“The idea of a reopening of the Strait of Hormuz is exactly what is needed to push oil prices back into the double digits,” said Edwards. “It's unclear how long these declines in oil will last, but it's looking more likely that the spike in oil prices in recent weeks was indeed temporary.”
The Iran conflict, which began on February 28, has caused widespread disruption to shipping in the Strait of Hormuz, and oil and gas production in the region. The Strait is a vital conduit for global oil supplies and about 20% of the world’s oil, or 20 million barrels per day, passes through the Strait.
Recent research by BloombergNEF found that the Iran war has cut global oil supply by about 9 million barrels of equivalent oil production per day. However, BNEF said that much of the region’s shut-in oil production could return relatively quickly, with the reopening of the Strait of Hormuz and the normalization of midstream operations.
The research organization estimates that field restarts and production ramp-ups could be completed within 1 to 7 weeks, depending on how long fields remain shut or operate below capacity, assuming limited restart complications.
"Investors will cheer the improvement in energy supply which will ease pricing pressure," said Jeffrey Roach, Chief Economist for LPL Financial, in a statement. "However, we cannot ignore the lingering second order effects on the global economy so investors should continue to watch how geopolitical risks may affect wholesale prices, growth, and financing conditions."
"We should still expect inflation to run a bit hotter this month, but the outlook has clearly improved with this ceasefire," he added.
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