Hormuz blocked again, stock market reacts unexpectedly calmly—what are investors pricing in?

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The United States announced a blockade of the Strait of Hormuz, pushing crude oil prices sharply higher, but the decline in the stock market was unexpectedly mild—this divergence is sending a clear signal: investors are treating geopolitical shocks as part of the negotiating game, not as the beginning of a systemic risk escalation.

On Monday, Brent crude jumped 7.4% in a single day, rising above $102 per barrel, while U.S. crude futures broke through $104. Meanwhile, S&P 500 index futures fell 0.7%, and European stocks were expected to open about 1.4% lower. According to Xinhua News Agency, on April 12, U.S. President Trump posted twice on social media stating that U.S.-Iran talks were "going well, and most issues have been agreed upon," but no deal was reached on the key nuclear issue. Trump declared that, effective immediately, the U.S. military will "begin blocking all ships attempting to enter or leave the Strait of Hormuz."

Last week, global stocks saw their biggest weekly gain in more than two years, while Brent crude experienced its largest weekly drop since 2022; in contrast, Monday's restrained pullback suggests the market sees a breakdown in negotiations as still part of the bargaining process. Pepperstone strategist Dilin Wu wrote in a report: "After an initial reaction to the weekend headlines, market sentiment has stabilized somewhat, but remains cautiously resilient. Traders are currently focused on whether diplomatic channels can be sustained, though there are not yet clear signs of progress."

Billy Leung, investment strategist at Global X ETFs, attributes this phenomenon to the market’s renewed understanding of Trump's style. "There is a belief that all this is just a negotiation tactic," he said, "The market has reached peak uncertainty; its response function is no longer as extreme as before."

The peak of panic may have passed, VIX signals stable sentiment

On Monday, the market structure showed obvious internal divergence: oil prices surged unilaterally, but the sell-off in risk assets was relatively restrained. The Brent crude June contract rose 7% to $102.17 per barrel, and the U.S. crude May contract rose over 8% to $104.93 per barrel.

Billy Leung said that recent market moves show investors are gradually adapting to geopolitical shocks, with volatility narrowing compared to previous weeks. "I believe the market now has a better pricing and understanding of Trump’s motives."

Jun Bei Liu, Chief Portfolio Manager at Ten Cap, said volatility indicators show that the most severe period of panic may be over. "A few weeks ago, we saw the VIX surge sharply, which was probably the peak of panic and selling... From now on, what the market really needs to do is find its own direction."

Billy Leung shares a similar view, but also highlights a key near-term risk: The political timeline of the ‘War Authorization Resolution.’ This resolution effectively leaves the Trump administration with a limited window and requires congressional authorization within a certain period. "In the coming weeks, we’ll see the Trump administration’s sense of urgency increase," he said, "The market may not have fully realized this constraint."

According to reports, U.S. congressional members are again seeking to pass resolutions to prevent the escalation of war with Iran and require Trump to obtain congressional approval before taking further military actions.

The Hormuz blockade boosts inflation expectations, bonds remain under pressure

The Strait of Hormuz is a choke point for about one fifth of the world’s oil flow. After the U.S. announced the blockade, shipping volume through the strait has dropped to a trickle, further reinforcing supply tightening expectations and heightening inflation concerns globally.

Since the outbreak of this round of conflict, U.S. oil prices have risen more than 55% in total. The uptick in inflation expectations has postponed the market’s expectation of interest rate cuts and pushed bond yields higher—10-year U.S. Treasury yields have risen over 333 basis points since the conflict began, and the dollar index has risen about 1.4% in the same period.

Standard Chartered’s Steve Brice said, higher oil prices will delay the timing of monetary policy easing, and put upward pressure on bond yields and the dollar. "However, we believe these are temporary phenomena, because we believe the U.S. is searching for ways to de-escalate the situation."

Oil prices expected to fall from highs, defensive positions leave room for stock market rebound

Some analysts hold a more optimistic view on the medium-term outlook for oil prices, believing the U.S. and Iran will eventually reach a negotiated solution, after which the current risk premium will quickly dissipate. Michael Yoshikami of Destination Wealth Management said, "I am quite sure oil prices will go down from here... We will see crude prices return to $80 per barrel."

Steve Brice of Standard Chartered noted, current stock market position structure itself supports the logic of a rebound. "We believe that as long as the situation does not substantially worsen, the stock market should continue to rise in the near term." He added that investors still maintain defensive positions, and the macro backdrop is relatively positive; once tensions begin to ease, the stock market will be well positioned for further gains.

Regarding gold’s weakness amid high geopolitical risks, Steve Brice attributed it to emerging market central banks selling gold to stabilize their currencies, but he expects gold demand to return once the Middle East situation gradually cools.

Michael Yoshikami concluded, "This is not an either-or outcome; for a while, we will remain in a gray zone." This is also a true reflection of the current market environment—geopolitical shocks are still significant, but are no longer capable of triggering the kind of panic selling seen at the onset of conflict.

Risk Warning and DisclaimerThe market carries risks, and investment requires caution. This article does not constitute personal investment advice and does not consider individual users’ special investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article fit their particular situations. Investment based on this article is at your own risk. ```