Are the US-Iran negotiations real or fake? At least Wall Street has received a clear signal from the five-minute surge triggered by Trump.

On Monday, just minutes after Trump announced on Truth Social that he was abandoning plans to bomb Iran’s energy infrastructure, oil prices plunged more than 13%, US Treasury yields tumbled sharply, and US stocks soared in pre-market trading.

Although less than an hour later, Iran refuted Trump’s claim that negotiations were underway, this did not reverse the overall market trend on Monday. Analysts pointed out that the market reacted this way because, to Wall Street, the signal was very clear: at the very least, Trump himself is eager to end the war he started more than three weeks ago, which has pushed the global economy to the brink of crisis.

Some analysts said that if the issue is not resolved within the next 7 to 10 days, we may see a global economic shutdown similar to the pandemic era. Today’s statement shows that Trump has realized the risk of a "cliff-like drop" facing the real economy.

Trump's move triggered a violent rebound lasting about five minutes and marked a footnote for Wall Street’s most turbulent trading day since the US and Israel went to war with Iran. This scene also recalls April last year when Trump launched “America vs the World” tariffs, pushed global financial markets to the edge, then quickly reversed course.

Media reports quoting sources said that, similar to then, Trump's statement was partly meant to calm investors unsettled by market turmoil and avoid a new round of sharp sell-offs at the start of the new week.

After the opening on Monday, the S&P 500 index surged 2.2% at one point, the biggest gain since May. The yield on two-year US Treasuries plunged 22 basis points from its high to 3.79%. Brent crude plummeted, falling below $100 a barrel. The dollar weakened, and European stock and bond markets turned from losses to gains and closed higher.

However, beneath the surface, the market still doubts whether Trump can easily end the conflict. As this sentiment spread, the morning gains across asset classes were gradually pared back. Investors widely suspect that Trump’s statement on Monday was more about short-term market stabilization. By the close of US stocks on Monday, the S&P 500’s gains had narrowed to about 1.2%, and the rally in the US bond market had also fallen back.

The above market moves highlight that verbal reassurance is insufficient to convince investors preparing for prolonged turmoil in the Middle East. Some worry that this is no longer solely up to Trump, unlike tariffs which could be halted at any time. Those who feel reassured because of Trump’s sensitivity to market reactions may be misjudging the situation.

In Trump’s first year back in the White House, traders gradually formed an expectation: whenever a policy triggered a sharp market drop, he would often quickly pivot. This phenomenon is known as the “TACO trade” (Trump Always Capitulates), which further fueled the “buy the dip” trading mentality—whether it was threats of trade wars, proposals to take over Greenland, or criticizing the Federal Reserve.

But the war with Iran has weakened this belief. Over the past few weeks, the conflict has escalated: Trump sometimes declares victory is near, sometimes blames allies for lack of support; Iran remains firm, blocking the Strait of Hormuz and cutting off a key global energy supply.

The impact of the Middle Eastern conflict became increasingly apparent last week. Surging energy prices brought new inflation shocks, and traders began betting that global central banks would be forced to raise interest rates further. This has exacerbated the risk of “stagflation”—weak growth combined with rising inflation—and wiped out over $2.5 trillion in global bond market value, potentially marking the biggest monthly drop in over three years.

This also highlights that the war is impacting other policy goals of the Trump administration—including lowering mortgage rates, suppressing oil prices, and projecting a robust US economy ahead of this year’s midterm elections.

Despite Trump repeatedly attacking Fed Chair Powell for not cutting rates, as of last Friday, the yield on two-year US Treasuries has risen more than 0.5 percentage points since the Iran conflict began, reflecting market concerns about limited policy space to curb inflation.

Analysts pointed out that although Trump is clearly striving to push oil prices down, perhaps, once again, it is the bond market that forces him to compromise.

After last Friday’s stock market decline, with the S&P 500 recording its longest weekly losing streak in a year, Trump stated on social media that he was “very close” to achieving his goal and was considering reducing military actions in the Middle East.

He then threatened that if Iran did not reopen the Strait of Hormuz within 48 hours, he would attack their power infrastructure. But by Monday, he announced a five-day pause in action and claimed negotiations were progressing—a claim denied by Iran.

To many, Trump’s erratic stance and inaccurate statements are undermining his credibility in the financial markets, seriously disrupting market positioning. Some analysts bluntly said:

The hardest thing to predict isn’t the war itself, but the White House’s communication style and the extent of the market’s reaction. The market cannot tell whether this is a credible signal that the end is near, or yet another statement that is almost entirely fulfilled.

The so-called truth depends on perception, and Trump’s capriciousness stacks uncertainty upon uncertainty, which in turn limits the ability of previously confident bears to drive the market further down. These reversals buy the market time and also suppress overconfidence—for better or worse.

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