From "upgrade to downgrade" on Friday, investors are "slapping themselves both ways"! Trump said overnight he is "gradually considering reducing military actions against Iran," oil prices fell and U.S. stock futures rose.
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The Middle East conflict has entered its 21st day, and the market experienced a dramatic reversal from escalation to de-escalation within the same trading day.
According to a Wallstreetcn article, after the Friday trading session, Trump posted on the social media "Truth Social" stating that the US is considering gradually de-escalating major military actions against the Iranian regime in the Middle East, and said that the set goals are very close to being achieved.
Once the news broke, the S&P 500 ETF (SPY), which had closed down more than 1.4% previously, saw its after-hours gains exceed 1% at one point; oil prices retreated from near the settlement price, with Brent crude falling from a high above $110 to just around $108.
However, just a few hours earlier, the market was digesting a series of escalation signals—US might send more ground troops to the Middle East, assess the occupation of Iran’s Khark Island, Iranian officials refused to discuss reopening the Strait of Hormuz. The rapid reversal within a single day caught oil bullish traders, who had bet heavily on rising oil prices, off guard, and similarly surprised stock market bears.
The geopolitical conflict in the Middle East continues, with the Strait of Hormuz almost closed, market tension intensifies, US stocks have fallen for the fourth consecutive week this week, marking the longest losing streak in a year. Concerns over energy supply disruptions are rising, Brent crude is up about 9% this week and nearly 50% this month.
Intensive Escalation Signals During Trading, US Stocks Accelerate Downward
During Friday’s US stock market session, the Middle East situation continued to move in a more tense direction, multiple bearish signals combined, further pressuring the market.
Wallstreetcn article mentioned, according to CBS News, sources said Pentagon officials have begun preparations for the potential deployment of US ground forces inside Iran, but the relevant plans have not been finalized and specific authorization conditions are unclear.
Meanwhile, according to US officials, the White House is sending hundreds of Marines to the Middle East, and is evaluating a plan to occupy or blockade Iran’s Khark Island to pressure Tehran and force it to open the Strait of Hormuz. Khark Island handles about 90% of Iran’s oil exports. If the action is implemented, the impact on global energy supply could be immeasurable.
According to Bloomberg, Iranian officials have become unwilling to discuss reopening the Strait of Hormuz, focusing on survival under joint US-Israeli strikes. The Strait of Hormuz is now nearly closed, with about 20% of the world’s oil transiting through it.
Driven by these developments, the Nasdaq index’s intraday decline expanded to 2%, leading the three major indices. Since the US-Iran conflict broke out, the Dow Jones and small-cap indices have cumulatively dropped nearly 7%.
It is noteworthy that inflation concerns sparked by surging energy prices are rapidly reshaping market expectations for the Fed’s policy path and becoming a major stress line in the financial markets this week.
The market now prices the probability of a Fed rate hike in 2026 at 50%. Previously, bond traders mainly betting on rate cuts are being forced to rethink their strategies, and market sentiment is shifting rapidly in a short period.
Gennadiy Goldberg of TD Securities remains cautious about the market’s rate hike expectations:
"We do not agree with the market's view on rate hikes. The surge in oil prices should lead the Fed to delay rate cuts under stagflation pressure. However, if the oil price increase is large enough, it could cause a shock to financial conditions, and the Fed may have to respond with rate cuts."
Bloomberg macro strategist Michael Ball warned that the Iran conflict is triggering a sudden repricing of monetary policy expectations, tighter financial conditions, putting the S&P 500 index at risk of turning a controlled pullback into a full correction.
Trump Posts After Hours, De-escalation Signal Triggers Market Reversal
As the market was digesting a whole day of escalation signals, Trump posted on "Truth Social" after hours Friday, with a clear shift in tone.
According to CCTV News, Trump listed the US as being very close to achieving its goals, including: completely weakening Iran’s missile capabilities, launch devices and related facilities; destroying Iran’s defense industrial base; eliminating Iran’s naval, air force and air defense weapons; absolutely not allowing Iran to get close to nuclear capability; protecting Israel, Saudi Arabia, Qatar, UAE, Bahrain, Kuwait and other Middle East allies with maximum strength.
On the Strait of Hormuz, Trump stated that the guarding and patrolling of the strait should be undertaken by other countries using it when necessary; the US will no longer bear this responsibility. If assistance is requested, the US is willing to provide support, but once the Iran threat is completely eliminated, such assistance will no longer be needed.
Some traders interpreted this after-hours statement as a reversal of previous escalation signals. SPY’s after-hours gains exceeded 1% at times, and Brent crude retreated from above settlement price to around $108.
RBC Capital Markets analyst Helima Croft and others pointed out in a research report, "There is currently no sign that this is a limited engagement," Tehran still "effectively controls the Strait of Hormuz," and US strikes on Khark Island have not changed Iran’s strategic calculations. This means that, regardless of how Trump’s after-hours statement ultimately materializes, market uncertainty is far from dissipated.
Violent Oil Price Swings This Week, Bullish Positions Hit Six-Year High
The energy market experienced the most violent weekly swings since the conflict began this week.
Brent crude’s settlement price broke above $112/barrel on Friday, the highest since mid-2022, up about 9% this week, close to 50% this month. Dubai crude futures soared 16.48% in a single day.
Rebecca Babin, Senior Energy Trader at CIBC Private Wealth, said: "Crude oil ended yet another volatile, news-driven week, with traders reducing short positions before the weekend, pushing prices higher. Today’s gains reflect Iran’s tougher rhetoric, limited evidence of transit through the Strait of Hormuz, unverified reports that Khark Island may be included in action range, and continued regional military buildup."
Capital flow data also confirms the market's extremely bullish sentiment.
According to ICE Futures Europe’s weekly futures and options data, as of Tuesday, fund managers’ net long positions in ICE Brent crude increased by 77,672 contracts to 428,704 contracts, the most bullish stance in more than six years. Analysts pointed out, Trump’s after-hours de-escalation statement puts these bulls at risk of being caught off guard by a sudden reversal.
The energy shock has spread to broader markets. European TTF natural gas contract prices rose to their highest levels since January 2023; average US diesel prices broke above $5 per gallon again this week.
According to Bloomberg analyst Nathan Risser, diesel powers core machinery from tractors in fields to interstate freight trucks, and industries will have to raise prices to cope with higher fuel costs, which will eventually filter through to daily consumer goods prices such as food.
International Energy Agency data shows this conflict has caused the largest supply disruption in global oil market history, forcing oil-producing countries around the Persian Gulf to cut production by a combined approx. 10 million barrels per day. Reportedly, Saudi Arabia’s base scenario shows that if the supply disruption continues until the end of April, oil prices may break above $180 per barrel.
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