(April 8): US stocks rallied after President Donald Trump’s announcement of a two-week ceasefire in the Iran war spurred relief across markets.
The S&P 500 Index soared 2.3% as of 9:52am in New York and the Nasdaq 100 climbed about 3%. Brent crude fell 16% to trade around US$92 a barrel, while West Texas Intermediate dropped to around US$93. Additionally, the CBOE Volatility Index hovered near 21.
Trump announced the agreement on social media hours after Pakistan, a mediator in talks, implored the US leader to back off his deadline for attacks on Iranian infrastructure. Israel has also agreed to the ceasefire, according to a White House official. Iranian Foreign Minister Abbas Araghchi said in a statement that safe passage through the Strait of Hormuz will be possible for two weeks.
The Strait of Hormuz appeared to remain largely blocked on Wednesday, as shipowners try to understand if they can safely transit the vital waterway following the ceasefire announced overnight.
Meanwhile, investors are trying to gauge whether this marks just a temporary halt to hostilities or a longer-term truce.
JPMorgan Chase & Co’s trading desk turned tactically bullish after modeling three scenarios ahead of Trump’s Tuesday deadline. “This ceasefire should trigger a re-risking potentially similar to the post-Liberation Day pivot,” wrote Andrew Tyler, JPMorgan’s head of global market intelligence. “How far could this go? Breaching 7,000 feels likely as euphoria returns to markets.”
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Goldman Sachs Group Inc traders including Matthew Kaplan warned that investors should expect “a squeezy macro tape today” as hedges or short positions are unwound.
Goldman also flagged that investors should keep an eye on systematic funds that follow the stock market direction. Demand for stocks from Commodity Trading Advisors, or CTAs, now “kicks in mechanically and should persist” while “volatility compression becomes a powerful tailwind,” Richard Privorotsky, partner at Goldman Sachs International, wrote in a note to clients Wednesday.
Still, he warned that the market will try to move past Iran as the stock market has largely retraced a large portion of the drawdown. “Ceasefires are fragile by definition and we’ve already seen strikes overnight across the Gulf,” Privorotsky wrote.
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To Michael O’Rourke, chief market strategist at JonesTrading, Wednesday’s rally is a major selling opportunity for investors. “Investor enthusiasm appears excessive given the uncertainty surrounding the deal,” he wrote. “The only bullish factor investors can have real confidence in is President Trump’s urgency to extricate the US from the region.”
From a technical perspective, the S&P 500 has breached above its 200-day moving average, with its next resistance level around the 50-day moving average, or 6,790 level.
“A reclaim of the 200-DMA is a meaningful step in reversing the correction but now it comes down to confirming the low is in,” said John Kolovos, chief technical strategist at Macro Risk Advisors. He sees an important support between 6,495 and 6,610. “As long as they hold on setbacks, the path towards a lower low to 6,100 will be off the table,” he added.
The latest news around the ceasefire has left the Trump Reversal Index — a gauge created by Bloomberg strategist Simon White that combines various macro indicators — back to not much higher than where it was before the war started. Light positioning is also fuelling Wednesday’s relief rally. Volatility-control funds’ allocations to US equities had recently fallen to 56%, the lowest since July, according to Barclays.
In corporate news, Exxon Mobil Corp said 6% of its global first-quarter production was knocked out as the Iran war paralysed much of the Persian Gulf energy industry. Half of those outages were concentrated at a liquefied natural gas complex in Qatar in which Exxon is a partner, the company said on Wednesday. Two LNG production lines, or trains, were damaged.
Delta Air Lines Inc expects to incur more than US$2 billion ($2.5 billion) in higher fuel costs through June because of the Iran war, prompting the carrier to tread carefully and stick to its previous full-year profit forecast.
Levi Strauss & Co raised its projections for the year after reporting better-than-expected quarterly results, citing strong demand as the denim brand steers shoppers to its own stores and website. Super Micro Computer Inc launched an internal probe to investigate circumstances surrounding server sales to China. Elon Musk is trying to have Sam Altman removed from his roles at OpenAI as part of his legal challenge to the company’s conversion to a for-profit company.
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In the IPO space, Arxis Inc, a maker of electronic and mechanical parts for aerospace and defence firms, is seeking to raise as much as US$1.06 billion in its US initial public offering.
Sectors to watch:
- Energy stocks are falling, following a decline in crude prices.
- Chip, memory and storage stocks are rising on improving risk sentiment — if the Strait of Hormuz reopens it would also improve the supply of helium, which is used in the production of semiconductors.
- Mining shares gain as bullion climbs.
- Shares in airlines and cruise operators are rising on the prospect of fuel prices stabilising.
Uploaded by Magessan Varatharaja
