The market got its headline. Now it has to deal with Hormuz, oil, inflation, and whether the deal actually holds.
KEY TAKEAWAYS
Markets are reacting to the ceasefire headline as if risk has been removed, but the structure of the agreement reflects a temporary pause rather than a durable resolution. Two weeks functions as a negotiating window, not an endpoint.
The Strait of Hormuz remains the central variable because oil flows, shipping logistics, and insurance markets require clarity, not headlines. Physical systems do not normalize on political announcements.
Three distinct market paths exist over the next several weeks, each with different implications for positioning. Scenario-based thinking is required instead of binary outcomes.
A clean continuation of the ceasefire would release pressure on oversold growth assets and fuel a rotation into rate-sensitive and energy-sensitive sectors. A breakdown would quickly reprice risk back into crude and reverse the relief rally.
A prolonged middle ground–no escalation, no resolution–keeps stagflation dynamics in place. Slowing growth, sticky inflation, and limited Fed flexibility define that environment.
MY HOT TAKES
Markets are over-indexing on headlines and underweighting structure and follow-through. The desire for resolution is exceeding the evidence of it.
Simultaneous strength in equities, bonds, and gold reflects hedging behavior rather than conviction. Risk is being managed, not dismissed.
Valuations in high-quality growth stocks have compressed meaningfully, but timing remains dependent on stability in energy markets. Entry points require confirmation, not just attractiveness.
Scenario-based investing is more effective than directional conviction in uncertain environments. Probabilities matter more than opinions.
The immediate focus should be on distinguishing between a reflexive rally and a sustainable shift in conditions. Not all upside is investable.
You can quote me: “When gold, bonds, and stocks all rally together, the market is not celebrating, it is buckling up.”
To the Moon…and back…and… Ok, I am writing this long before you woke up this morning. In fact, I technically started writing this as I scarfed down my supper last night. I learned, like you, that the President had brokered a cease fire that would last 2 weeks. If you asked me what I thought the chances of that were during yesterday’s market open–someone actually did on live TV, lol, I would have said that bombs were likely to be flying sometime after 8:00 PM last night. By midday, the buzz on the street would have painted me somewhat more optimistic about a ceasefire by the time I left the office.
I wasn’t sitting idle though. My brain–well, mostly my financial models–was buzzing with what-if scenarios, based on the scant and rather stochastic (which is a snazzy statistical, technical word for random). I have been quite clear on record in the press that I think stocks have a good chance of ending the year higher. How high and how fast has everything to do with the Iran war–specifically the timeframe and tidiness of its end–the latter being the most important variable to the model. I described certain oversold stocks as being like a slingshot held back, taught, waiting for the go go go signal. At a high level, many stocks with very solid growth stories supported by fundamentals, have been significantly cheapened as a result of both panic selling (AI software scare) and the war. They now sit ripe for the picking. I won’t name stocks here, but go and look at your favorite growth stock’s forward PE (before the open 🤣) and you may find that it is almost at the same valuation as the S&P 500! That didn’t make them a buy just yet–not with a war raging in the Gulf and spiking energy. If only…well, if only we can get an idea of where crude oil was headed. 😴💭
It has been an interesting couple of weeks since the beginning of the conflict. Those models I mentioned before have been worked, re-worked, and re-worked. In the midst of all this, Artemis II literally went to the Moon and is heading home. When I was young, “To the Moon” was either quite literally referring to going to the moon–or possibly a famous Honeymooners line. More recently, the phrase has been adopted by Wall Street.
All that said, you are likely waking up to rapidly-climbing futures and wondering what to do about it. First–take a breath. Second, keep reading, because right now, you need to think past today unless you are a day-trader–I know you are not. I decided to give you some food for thought this morning by giving you a high-level playbook, similar to the one I gave you prior to the onset of the war.
The ceasefire announcement coincidentally hit the wires at roughly the same moment Artemis II's crew was beginning their return journey from the Moon. Reid Wiseman, Victor Glover, Christina Koch, and Jeremy Hansen went up, circled the Moon–the first humans to do so since Apollo 17 in 1972 (when I was still in short pants) and are now headed home to splash down Friday off San Diego. They went to the Moon and came back. Whether this Iran deal has the same clean round trip is very much the open question this morning.
Here is what we actually know. The ceasefire is two weeks long, brokered by Pakistan, and explicitly described by Iran's own Supreme National Security Council as "not the termination of the war." ⬅️ An important distinction. Iran agreed to allow passage through the Strait of Hormuz "via coordination with Iran's armed forces," which is language that shippers and insurance underwriters will spend the next several days parsing very carefully, because you cannot restart the world's most critical oil chokepoint on ambiguous terms. As of last night, approximately 187 tankers loaded with crude and refined products remained stranded inside the Gulf, unable to move. Israel has declared the ceasefire does not apply to Lebanon, where its ground invasion continues. And there are real questions about whether Iran's Revolutionary Guard fully intends to stand down. Two weeks is a negotiating window, not a peace treaty, and Wall Street knows it.
The bond market rallied last night. So did gold. When your safe-haven assets go up at the same time as equities, the market is not celebrating, it is hedging.
Now I want to give you a framework for the next three weeks, because that is the window that actually matters for your positioning decisions right now. I am going to lay out three scenarios, assign each a rough probability, and tell you how to play it through ETFs. I use prediction markets to anchor the probabilities–these are real-money markets with over $163 million in total trading volume on Iran ceasefire outcomes alone, which makes them considerably more useful than a panel of TV commentators. Think of them as the crowd's best guess, backed by actual skin in the game. 👀
The first scenario is the one the futures market is pricing this morning: the deal holds. Islamabad talks begin Friday, Vance leads the US delegation, and within ten days the Strait begins to function meaningfully. The stranded tankers start moving. Shipping insurance gets reestablished. Gas prices, which the EIA had forecast peaking at $4.30 a gallon this month, start to come down toward $4 and below within a couple of weeks. I put the probability at roughly 35%. The prediction markets are bullish on a durable deal eventually, but are considerably more cautious in the near term given how many times we have seen these diplomatic cliffs end in last-minute chaos. If this scenario plays out, the rotation trade is the one to consider. Energy stocks like XLE and VDE were the story of the first quarter, rising nearly 38% as oil surged from $67 to $117. That trade was already made. The new trade is in the sectors that got crushed by $100-plus crude: airlines, consumer discretionary, and emerging market economies that import heavily through Hormuz. The US Global Jets ETF, ticker:JETS, directly benefits as jet fuel costs fall and margins recover. The Consumer Discretionary Select Sector SPDR, ticker:XLY, captures the domestic consumer who gets a de facto tax cut every time gasoline drops a quarter. And for international exposure, the iShares MSCI Emerging Markets ex China ETF, EMXC, captures South Korea, Taiwan, and India–economies that bore the heaviest import burden from the Strait closure and stand to rebound fastest when it reopens. In this scenario, the slingshot I have been describing gets released. Those quality growth stocks trading at compressed valuations snap back hard. It is the "go go go" signal the models have been waiting for… if it holds.
The second scenario is what I would call the base case, and I say that with full awareness of how uncomfortable that sounds the morning after a ceasefire. The deal frays. The probability here is roughly 40%--the single most likely outcome over a three-week window, precisely because the architecture of this agreement is so contested. Iran's 10-point proposal–which Trump called "workable"--includes demands for US military withdrawal from the entire region and removal of all sanctions. Further, Iran is reportedly demanding a $2 million toll for all ships passing through the Strait. It’s hard to imagine a scenario where that gets a permanent nod from the Administration. The United States has confirmed none of it publicly. Netanyahu says the Lebanon action is still live. And Iran's own statement entering the Islamabad talks uses the phrase "complete distrust toward the American side." That is not the language of counterparties who are almost done. That is the language of parties who are just getting started–and, importantly, who have very different audiences at home to satisfy. If talks stall, or if a strike in Lebanon triggers an Iranian response that Trump decides is a violation, the relief rally reverses and the war premium rebuilds into oil prices just as fast as it came out. In this scenario, the relief rally this morning is a gift to sellers, not an invitation for buyers. Gold via ticker:GLDM–the lowest-cost gold ETF at 0.10%--belongs in your portfolio not because it is exciting but because it worked throughout six weeks of conflict and continued to rise even on ceasefire night, which tells you something. The iShares 0-3 Month Treasury Bill ETF, ticker:SGOV, keeps your dry powder safe and liquid while the picture clarifies. And if you want direct exposure to a re-escalation in crude, ticker:USO provides that without the operational complexity of owning producer equities. Capital preservation first.
The third scenario is the one that is most underestimated and, frankly, the one that most resembles the world my models were describing before any bomb was ever dropped. The ceasefire technically holds, but the macro fog wins. No re-escalation, no dramatic peace breakthrough. Just a two-week diplomatic pause layered on top of an economy that was already showing serious signs of stress. The EIA's own models project that Gulf oil production will not return close to pre-conflict levels until late 2026, regardless of what is negotiated in Islamabad. Physical supply chains do not restart on diplomatic goodwill–they restart when infrastructure is repaired, insurance is restored, and shippers are convinced the risk is gone for good. In the meantime, the underlying stagflation pressures that pre-existed this war remain fully intact. Core PCE was running at 3.1% before the first strike. The Fed has held rates steady for two consecutive meetings, and futures markets were pricing only one or two cuts for the rest of the year as of early April, with nearly a 79% probability of rates staying right where they are through December. One hawkish FOMC member put it plainly: tariffs account for roughly half of the excess inflation above the Fed's 2% target, and no ceasefire in the Gulf changes that. The labor market has been sending mixed but worrying signals. February was revised down to a loss of -133,000 jobs, and while March came in at a better-than-expected 178,000, the three-month average is sitting around 68,000, which is barely above the breakeven rate needed to keep unemployment stable. That is not a healthy labor market. That is a labor market running on fumes, with the JOLTS hiring rate at levels last seen during COVID and the financial crisis. That is the stagflation box: prices up, growth slowing, Fed with one hand tied behind its back.
I put the probability of Scenario Three at 25%, but it is the scenario that does the most quiet damage to investors who are not paying attention. If the macro fog wins, the playbook is straightforward: own things people cannot stop buying regardless of what happens in Islamabad. Healthcare, ticker: XLV, is a clear expression of that idea. People do not defer their prescriptions or their doctor visits because geopolitics got complicated. Beyond healthcare, the other classic stagflation hedge is simply owning the physical stuff the world runs on–energy, pipelines, commodities–through companies that generate real cash flow and pay you a dividend while you wait. Ticker:XLE, the broad energy sector fund, gives you that exposure in the most straightforward way possible. Yes, energy had a massive run during the onset of the war. But even after last night's selloff in crude, we are still well above pre-war prices, and the structural case for energy income does not evaporate because a two-week ceasefire got signed. One word of caution for this scenario: resist the urge to pile into consumer staples just because they feel safe. The sector has had its best start to a year in nearly three decades and is trading at valuations that are anything but cheap right now. Sometimes the crowded defensive trade is the most dangerous one of all.
Here is the reality that connects all three. The Artemis II crew went to the Moon and is coming back home on a trajectory that NASA calculated with extraordinary precision. There is no ambiguity in orbital mechanics. The Iran ceasefire, by contrast, is heading home on a trajectory that still has multiple correction burns ahead, and unlike Orion (that’s the name of the cool capsule the Astronauts are in 🤓), there is no mission control with everyone rowing in the same direction. 35% probability that the deal holds cleanly enough to release the slingshot. 40% that it frays, turns the relief rally into a selling opportunity, and reminds us once again that geopolitical risk does not negotiate on a two-week schedule. And 25% that the macro fog we were already in simply reasserts itself quietly, regardless of what happens in Islamabad.
Take that breath I mentioned. Think past today. I know that this was a lot and you will be staring at your brokerage account this morning. A lot of speculative price correction has already occurred in the pre-market. If you held onto your good long-term, quality investments as I urged you to, you can breathe a sigh of relief for now, and perhaps, call it a win. Buckle in for re-entry.
YESTERDAY’S MARKETS
Stocks staged a pretty dramatic intraday reversal yesterday, with the S&P 500 erasing a decline of more than 1% to finish up 0.08%, the Dow slipping by -0.18%, and the Nasdaq edging up 0.10%, as hopes for a Pakistan-brokered ceasefire proposal lifted markets in the final hour of trading. WTI crude touched an intraday high of $117 per barrel before pulling back to close around $112, as ceasefire signals emerged late in the session. 10-year Treasury yields ended lower on the day as bond prices rallied alongside equities.
NEXT UP
FOMC Minutes (March 18th Meeting) will be released at 2:00 PM Wall Street Time. Don’t miss this in the excitement of last night’s ceasefire announcement. 😉
San Francisco Fed President Mary Daly will speak today.
Please call if you have any questions.
Best regards,
Mark