Markets ripped higher on rumors of a Middle East breakthrough, but the Strait of Hormuz story changed fast. Here’s why chasing this rally looks more like speculation than investing.
KEY TAKEAWAYS
Markets surged and crude plunged on rumors that the Strait of Hormuz was reopening and that diplomacy was taking over. The tone changed quickly once those claims ran into conflicting statements and evidence on the ground.
The core argument is that price action raced ahead of verified facts. Stocks and oil responded to the optimistic headline before the underlying situation was actually resolved.
The Strait became more than just a shipping lane. It turned into a pressure point that both sides could use to move oil, bonds, and equities with nothing more than headlines and messaging.
A double-digit intraday move in crude is treated as a major warning sign, not a clean signal. That kind of move suggests a market reacting emotionally to narrative rather than calmly to confirmed reality.
MY HOT TAKES
The market is not pricing complexity right now. It is pricing the friendliest possible version of a still-dangerous situation.
A headline-driven rally at all-time highs is a lousy place to get cute. The upside from chasing is small compared with the downside from getting trapped in the reversal.
Oil, stocks, and bond yields are now part of the information war. Words are moving markets almost as much as actual events.
Missing the first leg of a rally is not the real risk here. The real risk is mistaking a rumor burst for a durable change in facts.
Misinformation is not just background noise anymore. It is an investable variable, whether investors like it or not.
You can quote me: “The narrative itself–the Tweets, the headlines–has become the battlefield.”
Spinning heads. My long-timers know that I start my days at around 3:30 AM where I collect all the very latest news and market information and add it to everything I collected during the prior day's session. I don't do this because I have a sleep disorder, but rather, because information from the prior day's session, after which most bloggers write before happy hour, has a way of aging in the eastern markets and European open that is–many times–quite different from the prior afternoon–sometimes even unrecognizable from the prior day.
In the past year the aging process of information has sped up so rapidly, that it is hard to keep up–even for a Wall Street insider surrounded by expensive screens. 😉 Last Friday morning, I chose to write about the changing of the guard at the Fed. After all, Kevin Warsh's Senate confirmation starts officially this week–which also happens to coincide with the end of the US-Iran ceasefire agreed upon recently. After all, the Fed Chair is quite possibly the most influential to your portfolio human being on the planet–just sayin'. As I pressed go and sent out Friday's blogpost/newsletter, tides were already changing in the markets as back-and-forth rumors began to swirl through the market. I prepared video scripts on the Fed and, of course, my thoughts on the latest goings-on in the Strait.
By the time I recorded my daily videos, stocks had already skyrocketed higher and crude dipped on first–rumors that the US was considering extending the ceasefire timeline, Israel announcing a ceasefire with Lebanon, and Iran agreeing to open the Strait of Hormuz. Add in a quick interview with a mainstream media source in which I welcomed the news–though I remained skeptical until we could see some tangible evidence–like an agreement, or SHIPS ACTUALLY TRAVERSING THE STRAIT… you know… evidence, like in the old days.
Before the ink even dried on those comments, stocks lurched even higher and crude fell further. Reports were circulating that Iran had agreed to surrender its enriched uranium and step back from its nuclear ambitions entirely. The conflict would be solved in hours. At least it appeared that way on the surface–and in stock indexes, and in bond yields heading lower. All flags were flying in the same direction for a change, and it was enough of a development to warrant picking up my pen for an update piece and video script. I reported the very latest, but once again urged investors not to chase markets sitting at all-time highs–all-time highs achieved on little more than… well, rumor. Video dispatched. By the time I sat down for my Friday night supper, it was clear that it might not age well.
It didn't.
By Saturday morning, the oil crash that had sent traders into a celebratory frenzy was already beginning to look exactly like what I feared it was–a trap. Not a conspiracy, mind you, but something perhaps more dangerous in markets: a narrative that both sides were simultaneously and actively using as a weapon against each other. Iranian Foreign Minister Araghchi had posted on social media Friday that the strait was "completely open" for commercial vessels. Markets took that at face value. The S&P hit a third consecutive record high. Crude collapsed more than -10%. The President himself posted "THANK YOU!" to Tehran on Truth Social. For a few hours on Friday afternoon, it looked like the adults were finally in the room.
They weren't. By Saturday morning, Iran's joint military command had reversed course entirely, announcing that control of the Strait of Hormuz had returned to what they called "strict management." The Supreme National Security Council declared the US naval blockade–which has been turning away ships from Iranian ports since April 13th–a violation of the ceasefire, and said the strait would remain closed until that blockade was lifted. Hours later, IRGC gunboats fired on a tanker attempting to pass through. A second vessel was struck by a projectile shortly after. No injuries, thankfully, but the message was unmistakable: the strait was not open, ships were not transiting freely, and Friday's oil crash was built entirely on words–words that Iran's own state media subsequently walked back, criticizing their own foreign minister for creating, and I am quoting directly here, "various ambiguities." That is a remarkable sentence to read from any government's official press apparatus about its own foreign minister's public statement.
Meanwhile, the President told reporters aboard Air Force One late Friday that the naval blockade of Iranian ports would remain in place even if the ceasefire expires this Wednesday– and that if no deal is reached, the US would have to "start dropping bombs again." On Sunday morning, he escalated further on Truth Social, threatening to destroy "every single power plant and every single bridge in Iran" if negotiations collapse. He also confirmed that his representatives are heading back to Islamabad for another round of talks as early as tonight. So we have: a closed strait, IRGC gunboats firing on commercial vessels, a ceasefire expiring in three days, and simultaneous threats and diplomatic outreach coming from the same administration within hours of each other. Welcome to the information environment your portfolio is now forced to navigate.
Here is what concerns me most from a markets perspective. The oil crash on Friday was not a minor repricing. A -10% intraday move in crude is an enormous event. Equity markets followed, and are now sitting at or near all-time highs, pricing in, implicitly, a scenario in which the Strait reopens cleanly, a deal gets done, and energy supply normalizes. That is the most optimistic reading of a situation in which the ceasefire expires Wednesday, talks have already failed once after twenty-one hours in Islamabad, IRGC gunboats are actively firing on ships, and both sides are using the strait's open-or-closed status as a negotiating lever rather than a good-faith gesture. The market is not pricing that complexity. It is pricing the headline, and the headline has–unfortunately–already been retracted.
This week will surely feature a reconcilliation–and not necessarily a gentle one. Negotiators are expected back in Islamabad tonight. The ceasefire clock runs out Wednesday. Iran has new US proposals on the table as of this weekend and Pakistani mediators are working overtime to bridge the gap. Any one of those threads could produce a headline that moves markets violently in either direction within minutes. I have watched this market snap 10% on a foreign minister's social media post. Think about that for a moment. That is the environment. And in that environment, chasing prices–in either stocks or crude–is not investing. It is pure speculation, and it is speculation on information that has repeatedly proven to have a very short shelf life.
My counsel this week is unchanged from what it has been since this whole situation began, and frankly from what I said on Friday before the big run-up: sit tight, be selective, and do not chase. If a deal does emerge from Islamabad, there will be time to assess it, read it, understand what it actually says versus what a social media post claims it says, and make measured decisions. The risk of missing the first fifteen minutes of a rally is far smaller than the risk of being fully invested at all-time highs when the next reversal arrives–and reversals in this environment, as Friday and Saturday reminded us, can arrive before dinner.
The narrative itself has become the battlefield. Both Washington and Tehran understand that oil prices, equity markets, and bond yields are pressure points, and both sides have demonstrated a willingness to move them through statements, clarifications, and retractions in rapid succession. That is not a market you want to be chasing. That is a market you want to be watching, carefully, with dry powder in hand and discipline at the ready. Stay frosty–the enemy is on the wire–and the enemy is misinformation.
FRIDAY’S MARKETS
Stocks surged to record highs across the board on Friday, with the S&P 500 gaining 1.2% to close above 7,100 for the first time, the Nasdaq adding 1.5% in its longest winning streak since 1992, and the Dow jumping 1.8%. The catalyst was Iran's announcement that the Strait of Hormuz was open to commercial traffic, which sent crude oil plunging nearly -10% to close around $82.50 a barrel. The VIX, Wall Street's fear gauge, fell another -2.6%, closing at 17.48. Gold held its ground, adding 1.5% to close near $4,880 an ounce.
NEXT UP
No major releases this morning. The week ahead will feature Retail Sales, Pending Home Sales, regional Fed reports, flash PMIs, and University of Michigan Sentiment. This week will also be filled with MANY important earnings releases. Also, Kevin Warsh is expected to begin his confirmation this week. Check back every day to ensure your spot at the front of the chow line.