The market is "highly volatile" between two narratives: "The war is about to end" vs "The Strait of Hormuz will be closed for a long time"

The crude oil market experienced an "information storm" of mixed bullish and bearish signals on Tuesday. From the release of the U.S. Strategic Petroleum Reserve to statements from the Iranian president, from the risk of a blockade in the Strait of Hormuz to Trump's claim that the war is "about to end," oil prices reversed several times within a single day, ultimately closing up about 5%. JP Morgan traders pointed out that the day's headlines simultaneously supported two completely opposing market narratives: one is the "exit ramp" narrative of de-escalation of conflict and stabilization of oil prices, and the other is the "sustained risk" narrative of a long-term closure of the Strait of Hormuz. The market swung violently between the two, with oil price volatility rising back to near the highs of the previous Sunday night. High oil prices continued to pressure the stock market, with the S&P 500 index closing down, and the bond market also faced selling, with yields rising across the board by 5 to 8 basis points. The situation further fermented after hours. Reports indicated that a tanker exploded in the Persian Gulf, causing oil prices to rise, while the stock market fell in tandem, quickly unraveling the brief "decoupling" trend of stocks, bonds, and oil that had appeared at the close. Bullish Signals: Iran Releases Ceasefire Conditions, Reserve Release Boosts Sentiment JP Morgan traders viewed a headline that appeared at 2:15 PM that afternoon as a key positive signal—Iranian President Pezeshkian tweeted that a ceasefire depends on the U.S. and Israel's commitment to refrain from future strikes. JP Morgan believes this is the "exit strategy" signal from Iran that the market has been waiting for. According to CCTV News, on the evening of March 11 local time, Iranian President Pezeshkian stated on his social media platform that the "only way" to end the current war instigated by the U.S. and Israel is to recognize Iran's legitimate rights, pay war reparations, and provide firm guarantees from the international community to prevent future acts of aggression. At the same time, members of the International Energy Agency (IEA) announced their agreement to release 400 million barrels of oil reserves, which alleviated supply concerns to some extent. Trump also made several dovish statements that day: He claimed at 9 AM Eastern Time that "the war with Iran is about to end, Iran has almost nothing left"; At 12:15 PM, he stated that U.S. forces had destroyed almost all of Iran's minesweeping vessels; At 12:30 PM, he said oil companies should use the Strait of Hormuz; At 1 PM, he promised to provide "full security guarantees" for tankers passing through the Strait of Hormuz. These statements temporarily pressured oil prices multiple times, indicating that market expectations for de-escalation of conflict still have some elasticity. Bearish Signals: Bombing Continues, Strait Escort Coordination Requires Weeks However, the bears also have ample arguments. JP Morgan traders pointed out that military strikes in the Middle East are still ongoing—U.S. Secretary of Defense Hegseth claimed that it was the day with the most aircraft deployed, the most bombers, and the most strikes in the entire war At 3:30 PM Eastern Time, large-scale bombings occurred over Israel and Lebanon, pushing oil prices to the day's high. French President Macron's statement also put pressure on the market. He stated that coordinating the escort of ships through the Strait of Hormuz "will take weeks," and that the strait is still "too dangerous" for U.S. Navy escorts. According to Xinhua News Agency, French President Macron stated on the 11th that in the current tense situation in the Middle East, members of the Group of Seven (G7) should coordinate actions to restore navigation through the Strait of Hormuz as soon as possible. French media quoted Macron as saying that based on intelligence held by France or its partners, he could not confirm that Iran has laid mines in the Strait of Hormuz. In addition, reports indicate that the FBI has issued a warning that Iran may launch drone attacks on California. Following this news, oil prices surged, and the stock market fell simultaneously. After hours, the explosion of a tanker in the Persian Gulf further reinforced the real risk of supply disruptions, tipping the balance of bulls and bears back toward bearishness. Extreme Tail Risk: A Right-Side Short Squeeze is Imminent Despite the current bearish sentiment in the stock market, Goldman Sachs partner John Flood warned in a media interview that there is also a significant risk of sharp upward movement in the market. He pointed out that the total leverage of hedge funds is currently close to historical highs, primarily driven by the continuous accumulation of short positions through macro products (indices and ETFs). According to Goldman Sachs' brokerage data, the short exposure of macro products as a percentage of the total market capitalization in the U.S. is currently at its highest level since September 2022, ranking in the 93rd percentile over the past five years. "Once a headline announcing the end of the conflict appears, indices could see a sharp rise," Flood stated, "potentially jumping 2% to 3% in a straight line, with most of that coming from short covering in macro products." Meanwhile, market liquidity is becoming thin, with ETF trading volume accounting for over 35% of the total daily trading volume for seven consecutive trading days, nearing the record of ten consecutive days set during the COVID-19 pandemic in 2020. Flood warned that insufficient liquidity will further exacerbate stock market volatility in the coming weeks