Hopes of a brief end to the Iran war have buoyed markets, but policy is volatile

If you woke up today and heard someone say that Wall Street’s tech sector was up more than 3 percent overnight, you’d expect it to be immediately followed by “April Fools’ Day.”

But no, American stocks rose overnight, with the Dow Jones Industrial Average jumping 1,125 points on Tuesday.

The benchmark S&P 500 gained 2.9 percent for the biggest gain since May 2025.

The Dow Jones Industrial Average rose 2.5 percent, while the Nasdaq composite jumped 3.8 percent.

Confidence began to build on Wall Street about a possible end to the war with Iran.

‘Bullish’ headlines

The headlines supported that view.

Indeed, hope entered the market late Tuesday, Australian time, when the Wall Street Journal reported that President Donald Trump told aides that he was willing to end the US military campaign against Iran even if the Strait of Hormuz remained largely closed.

The narrow waterway facilitates the flow of about 20 percent of the world’s oil supply.

Overnight, Australian time, Trump urged oil-dependent countries to “build slow courage” and “take oil”.

This coincides with Iranian President Masoud Pezeshkian reportedly saying Iran wants an “end” to the war.

China and Pakistan – which have done everything in their power to bring peace to this war – have also proposed five points to restore stability and calm in the Middle East.

Now, earlier today, Trump, in the Oval Office, gave a firm signal that the US will withdraw from the conflict within two or three weeks.

Share markets don’t get enough good news.

“There were some worthy headlines,” Capital.com’s Kyle Rodda wrote.

Crazy eating

That being said, there have been no official signs that the war is over, nor that the Strait of Hormuz is safe to navigate.

Of course, money fell sharply on Wall Street after the new headlines hit the trading desks.

“The heads worked like a spark,” said Rodda.

Simply put, those who run superannuation funds (or pension funds as they are often called), hedge funds, and banking departments, faced a very difficult month and quarter of profits.

Other major stock market indexes are down nearly 10 percent from their market peak in late February.

That left fund managers mandated to have a certain percentage of their portfolio invested in stocks, so they had to buy last night to fill it.

Some fund managers overnight sensed some significant buying activity in the market, and piled in, buying stocks, to help bolster their quarterly performance.

This trend fed on itself.

“The result was a big rally on Wall Street with many market participants feeling sad that the markets were too expensive to end the war,” said Mr Rodda.

The need for ‘concrete’ evidence

But it might end up being a wicked April Fool’s joke.

Westpac said it expects oil market disruption to continue until the end of April, and forecasts oil prices to “average” around $120 a barrel in the second quarter of 2026.

The price of the March contract for the world’s oil standard, Brent crude, was trading at around $105 a barrel mid-morning on Wednesday.

Oil prices above $US100 a barrel are not a confidence vote from energy traders with a rapid return to pre-war levels of oil and gas supplies.

Stockbroker Marcus Padley dismissed it all as “noise” and said little had changed.

“At this point, we have a lot of noise about the meeting, but nothing concrete about the progress of peace – Iran’s statement is “not confirmed” so far,” Marcus Padley said.

“We don’t have any of that”

Padley, who runs his own fund, made it clear that he is not buying his clients from the market today.

“We are not buying today but we are very close to doing so,” he said.

“We need more than a meeting of fatigue. We need more than a peaceful grumble.

“We might get them. But by the end of the month, this could easily be lighter.”

Stagflation Concerns

The main problem for the world economy and financial markets is still the prospect of recession.

This occurs when supply shocks push costs, and therefore inflation, higher, followed by a period of low economic growth.

It is often followed by higher interest rates and rising unemployment.

Many Australian banks do not see this as a likely outcome for Australia, however. But the worries remain.

“Our main case for now is that US-Iran negotiations will be successful in the coming weeks, as there are clear signs that President Trump wants to ‘get off track,'” AMP deputy chief economist Diana Mousina wrote.

However, it may take some time for oil prices to normalize again.

“Consumer spending will slow and GDP growth will be slower than it would have been.”

Australia’s 3 Year bond currently yields 4.6 per cent.

This means that financial markets are currently pricing in the expectation of two more RBA interest rate hikes in the current session.

Westpac has as many as three, although CBA expects just one before two rate cuts next year.

In assessing whether Wall Street’s optimism about the end of the war was justified, it is important to examine the bond market.

Based on the latest trade, it needs more convincing, like most analysts.