Are US-Iran Negotiations Real? Wall Street Sees a Clear Signal in Trump's Five-Minute Surge

On Monday, just minutes after Donald Trump stated on Truth Social that he was abandoning plans to bomb Iranian energy infrastructure, oil prices plunged more than 13%, US Treasury yields dropped sharply, and US stock futures surged. Although Iran denied Trump's claims of ongoing negotiations less than an hour later, this did not reverse the overall market direction on Monday. Analysis indicates the market reacted this way because, in Wall Street's view, the signal was very clear: at least Trump himself is eager to end this war, which he initiated more than three weeks ago and which has pushed the global economy to the brink of crisis. Some analysts suggested that if the issue is not resolved within the next 7 to 10 days, we could see a global economic shutdown similar to the pandemic era. Today's remarks indicate that Trump realizes the real economy faces the risk of a "cliff-like drop." Trump's move sparked a fierce rally lasting about five minutes, punctuating Wall Street's most volatile trading day since the start of the US-Israel conflict with Iran. The scene recalled last April, when Trump launched his "America vs. the World" tariffs, pushing global financial markets to the edge before a swift pivot. Media reports citing people familiar with the matter stated that, similar to that time, Trump’s remarks were partly aimed at soothing investors unsettled by market volatility and preventing a new round of sharp selling at the start of the new week. After the US stock market opened on Monday, the S&P 500 index briefly rose 2.2%, its largest gain since May. The yield on the two-year US Treasury note at one point plunged 22 basis points from its high to 3.79%, Brent crude oil plummeted, falling below $100 per barrel, the dollar weakened, and European stock and bond markets also turned from losses to gains and closed higher. However, beneath the surface, the market remains skeptical about whether Trump can easily end the conflict. As this sentiment spreads, early gains in various assets have gradually been erased. Investors generally suspect that Trump’s remarks on Monday were merely short-term measures to stabilize the market. By the close of US trading on Monday, the S&P 500's gain had narrowed to about 1.2%, and the rally in the US bond market had also pulled back. The aforementioned market movements also highlight that verbal reassurances alone are insufficient to convince investors who are already preparing for prolonged turmoil in the Middle East. Some worry that this is no longer entirely within Trump's control, unlike tariffs which can be halted at any time. Those who felt reassured by his sensitivity to market reactions may have misjudged the situation. In Trump's first year back in the White House, traders gradually formed an expectation: once policies triggered market plunges, he would often quickly reverse course. This phenomenon was dubbed the "TACO trade" (Trump Always Caves Out), which also fueled a "buy the dip" trading mentality—whether it was trade war threats, proposals to take over Greenland, or criticism of the Federal Reserve. But the war with Iran has weakened this conviction. In recent weeks, the conflict has escalated: Trump has at times claimed victory was imminent, and at other times accused allies of not providing support; Iran has remained resilient, and by blockading the Strait of Hormuz, it has cut off critical global energy supplies. The impact of the Middle East conflict became more evident last week. Soaring energy prices brought a new inflationary shock, and traders began betting that global central banks would be forced to raise interest rates further. This exacerbated the risk of "stagflation"—weak growth coupled with rising inflation—and led to the evaporation of over $2.5 trillion in market value from the global bond market, potentially marking its largest monthly decline in more than three years. This also underscores how the war is impacting other policy objectives of the Trump administration—including lowering mortgage rates, suppressing oil prices, and projecting an image of a robust US economy ahead of the US midterm elections this year. Despite Trump's repeated criticism of Federal Reserve Chairman Jerome Powell for failing to cut interest rates, the yield on the two-year US Treasury note had risen by more than 50 basis points since the start of the Iran conflict as of last Friday, reflecting market concerns about inflation constraining policy space. Some analysts point out that although Trump is clearly trying to suppress oil prices, perhaps, once again, it is the bond market that has forced him to concede. Following the stock market decline last Friday, which saw the S&P 500 record its longest weekly losing streak in a year, Trump stated on social media that he was "very close" to achieving his goals and was considering scaling back military operations in the Middle East. He then threatened to attack Iran's power facilities if it did not reopen the Strait of Hormuz within 48 hours. But by Monday, he announced a five-day pause and claimed progress in negotiations—a claim denied by Iran. In the view of many, Trump's shifting stances and inaccurate statements are eroding his credibility in financial markets, which has severely disrupted market positioning. One analyst stated bluntly: The most difficult thing to predict is not the war itself, but the White House's communication style and the extent to which the market reacts to it. The market cannot judge whether this is a credible signal of the endgame or yet another claim of nearly total success. The so-called truth depends on perception, and Trump's volatility layers uncertainty upon uncertainty, which in turn limits the ability of originally confident bears to drive the market further down. Such flip-flopping buys time for the market while also suppressing overconfidence—for better or worse.