Wall Street is front-running a war that has not yet ended.
On Friday, April 17 local time, Iran announced the resumption of commercial shipping passage through the Strait of Hormuz, coupled with news of a ceasefire between Israel and Hezbollah in Lebanon. Risk appetite swept global markets.
The S&amp;P 500 index rose 1.2%, hitting a record closing high for the third consecutive trading day; the Nasdaq closed higher for 13 consecutive trading days, tying the longest winning streak since 1992; the Dow Jones surged 1.8%, completely recovering all losses since the conflict began.
Year-to-date, the S&amp;P 500 has gained 9% this month, marking its largest monthly gain since 2020. From the March low to the historical high, the S&amp;P rebounded in just three weeks. According to Rocky Fishman of Asym 500, this was the fastest rebound of such magnitude on record.
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Meanwhile, the dollar briefly erased all wartime gains intraday, and WTI crude oil futures plummeted by more than 11% in a single day.
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However, several market participants warned that this frenzy rests on an unstable foundation. Reports indicate that the &#34;opening&#34; referred to by Iranian Foreign Minister Araqchi actually means commercial vessels must still coordinate with Iran before passage, a significant gap from the market's interpretation of &#34;full free passage.&#34; Trump also stated that the U.S. would maintain a naval blockade of the Strait of Hormuz until a final agreement is reached with Iran.
<h2>Equities: Front-running Sentiment Dominates, Fundamentals Provide Support</h2>
The rapid market rebound stems partly from fear of missing out.
According to Bloomberg, after Trump significantly reduced tariffs last year, the market experienced a sharp rebound that caught many shorts off guard. This time, traders chose to bet on a full recovery ahead of any substantive repair in supply chains, energy infrastructure, or consumer confidence. Commodity Trading Advisors (CTAs) who were previously shorting stocks were forced to flip long and chase prices at high levels.
However, the rebound is not driven solely by sentiment. The resilience of the U.S. economy, earnings reports beating expectations, and enthusiasm for AI demand provided independent upward momentum. According to Marcella Chow, Global Market Strategist at J.P. Morgan Asset Management, S&amp;P 500 earnings growth expectations for 2026 have been revised up by nearly 3 percentage points. She stated: &#34;Even if conflict-related factors reduce per-share earnings growth by single digits, it still implies potential for double-digit earnings growth.&#34;
Goldman Sachs Chief Equity Strategist Chris Hussey noted that the three major risks suppressing the market showed signs of easing this week: rising expectations of relief from the energy crisis, no further expansion of stress in the private credit market, and diverging risks regarding AI disruption.
The Magnificent Seven tech giants have not seen a single-day decline since March 27, gaining approximately 19% during that period. Tesla gained nearly 15% this week, and Microsoft gained 14%. Benefiting from the plunge in oil prices, airlines and cruise stocks led the S&amp;P 500, with Royal Caribbean surging 7.34% and United Airlines rising over 7%.
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<h2>Oil Prices: Futures Plunge, But Physical Market Remains Abnormal</h2>
Oil prices represent the asset with the widest gap between market optimism and physical reality in this rebound.
WTI crude oil futures fell more than 11% on Friday, down over 13% for the week, retreating to their lowest level since March 10 and falling below the 50-day moving average for the first time since early January. U.S. crude has given back approximately 70% of its gains since the outbreak of the conflict.
However, according to Bloomberg, physical crude oil prices remain elevated, reflecting real-world issues such as disrupted shipping routes, high tanker freight rates, and depleted inventories. Analysts believe these issues may take weeks or even months to normalize.
Brij Khurana, a portfolio manager at Wellington Management, put it simply: &#34;Oil price movements dictate interest rate movements; it's that simple.&#34; He added that falling oil prices will transmit to inflation expectations, and yields could &#34;gradually decline before summer.&#34;
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<h2>Bonds: Rate Cut Expectations Surge Suddenly, Yet Short-end Rates Remain Cautious</h2>
The plunge in oil prices directly fueled surging rate cut expectations.
Interest rate futures data show the probability of at least one Fed rate cut this year jumped sharply from about 30% the previous day to 70%. The 10-year U.S. Treasury yield fell 7 basis points to 4.24%, marking its largest single-day drop since March 30; the 2-year U.S. Treasury yield fell 7 basis points to 3.70%, breaking below the federal funds rate of 3.75% for the first time in over a month.
Nevertheless, the bond market remains cautious overall. According to Bloomberg, Andrew Chorlton, Chief Investment Officer of Fixed Income at M&amp;G Investments, stated: &#34;Financial markets have priced in almost no risk beyond the short end of the rate curve. Inflation expectations two years from now—there is currently no risk premium being priced in.&#34;
Since the outbreak of the war, the 2-year U.S. Treasury yield has risen cumulatively by about 30 basis points, while the UK 2-year gilt yield rose by about 60 basis points over the same period. Before the war broke out, traders had expected multiple Fed rate cuts this year, whereas now there is only about a 60% probability of betting on a single rate cut.
Gennadiy Goldberg, Head of U.S. Interest Rate Strategy at TD Securities, took a cautious stance: &#34;All of this indicates the market is extremely sensitive to news regarding the Middle East situation. Many investors will wait and see to confirm that progress is sustainable rather than seeing a reversal over the weekend.&#34;
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<h2>Dollar: Intraday Erasure of Wartime Gains, But Rebound Narrows</h2>
The U.S. Dollar Index moved in a V-shape on Friday, plunging over 0.6% intraday to hit a seven-week low, before rebounding, ending relatively unchanged from Thursday's New York close.
Reports indicate that hedge funds have massively established short positions in the dollar. Conversa strategist George Vessey analyzed: &#34;The weakening dollar mainly stems from the market digesting geopolitical risk premiums, but this does not mark the beginning of structural dollar depreciation. Questions remain about the Fed's next move, inflation data exceeds expectations, and the economy remains resilient.&#34;
Bank of America's cross-market risk indicator—a composite measure gauging volatility in global equities, rates, currencies, and commodities—is heading toward its second-fastest monthly decline on record, surpassed only by the recovery phase at the onset of the pandemic.
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<h2>Risks: Markets Pricing in 'War End,' But Core Issues Remain Unresolved</h2>
Several market participants have issued warnings against current optimism.
Sarah Bianchi, former trade official at Evercore ISI, wrote: &#34;The Iran crisis seems to be heading toward a tentative and fragile solution; even if an agreement is reached, many core issues will remain unresolved.&#34;
Daniel Ivascyn, Group Chief Investment Officer at PIMCO, stated: &#34;The market believes the most likely outcome is de-escalation, but tail risks are very large. This is a genuine inflation shock.&#34;
Laura Cooper, Head of Macro Credit at Nuveen managing $1.4 trillion in assets, offered a more direct assessment: &#34;The market's true mispricing lies in treating this conflict as already over, while underlying vulnerabilities persist.&#34;
Goldman Sachs Liquidity Strategist John Flood also pointed out that CTA quantitative trend strategies bought approximately $33 billion worth of S&amp;P index positions this week, but the fastest buying phase has passed. He stated: &#34;The market is now preparing for a pullback next week.&#34;
Historically, market dismissal of geopolitical events has almost always proven correct—the global stock market fell only 0.6% on the day the Russia-Ukraine conflict erupted. However, according to Bloomberg, Maxence Visseau, founder of Arkevium, noted that two exceptions occurred during periods of sustained oil supply disruptions: 1973 and 1990. Whether this conflict will join this short list depends on developments over the coming weeks.

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The Nasdaq closed higher for 13 consecutive trading days, tying the longest winning streak since 1992; the S&P 500 gained 9% this month; the dollar briefly erased all wartime gains intraday, while crude oil prices plummeted over 11% in a single day, yet remain far above pre-war levels, and passage through the Strait of Hormuz still requires coordination with Iran. PIMCO CIO stated, "The market believes the most likely outcome is de-escalation, but tail risks are very large. This is a genuine inflation shock."

- Wall Street anticipates a resolution to ongoing tensions following Iran's reopening of the Strait of Hormuz for commercial shipping and a ceasefire between Israel and Hezbollah, driving global market optimism.  
- The S&P 500 rose by 1.2%, achieving a new closing high for the third consecutive day, fueled by fears of missing out on market gains despite underlying risks such as uncertain geopolitical developments.  
- Experts caution that markets may be overestimating the stability of this rebound, as core issues remain unresolved, and the potential for further volatility exists depending on the evolution of the conflict.

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Celebrating the 'End of War' and Opening Champagne Early? Analysts Warn: Tail Risks Remain Huge