As the opening bell resonated through the New York Stock Exchange on Tuesday afternoon, the day was characterized by unusually pleasant weather—71 degrees with sunshine illuminating the faces of bustling city-goers. Following the harsh winter, this day felt refreshingly miraculous.
The markets, evoking a keen sense of anticipation, were focused on a rumor.
Iran's state news agency disseminated an unverified account of a phone conversation between President Masoud Pezeshkian and the President of the European Council. During this interaction, Pezeshkian conveyed that Iran possessed the "necessary will" to terminate the war, contingent upon fulfilling "essential conditions, especially the guarantees required to prevent repetition of the aggression." Almost instantaneously, the S&P surged higher. Notably, the prior statements made by Pezeshkian on Twitter earlier this month raised questions regarding the significance of this development.
The Nasdaq made a notable recovery, gaining 795 points and reclaiming nearly half of its overall drawdown amid the U.S.-Israeli-Iran conflict in just one trading session. The S&P rose by 2.89%, translating to a robust increase of $1.7 trillion, and it restored approximately 30% of its total drawdown since the war commenced. The Dow also witnessed a remarkable ascent, climbing 1,125 points. Collectively, all three indexes recorded their most substantial single-day increases since May.
What is particularly remarkable about this rally is not only its magnitude but the underlying fragility of the assumptions upon which it was predicated.
The rally's momentum originated Monday evening when the Wall Street Journal reported that President Trump had expressed a willingness to conclude military operations against Iran, even if the Strait of Hormuz remained largely closed. Futures jumped by approximately 1.5% immediately following this announcement. However, the same report also indicated that military options were still being deliberated, and a potential withdrawal would compel other nations to tackle the intricate challenge of reopening the Strait, a crucial passage through which 20% of the world's oil is transported.
The following morning, Trump emphasized his stance in a social media post, urging allies to muster their “delayed courage” to take responsibility for the Strait. "Iran has been, essentially, decimated. The hard part is done," Trump stated. "Go get your own oil!" Shortly thereafter, Defense Secretary Pete Hegseth and Chairman of the Joint Chiefs Gen. Dan Caine held a pre-opening press conference. They refrained from making any commitments regarding the Strait or the timeline of the conflict but asserted that progress was being made. When trading commenced, most major indexes experienced gains exceeding 1%.
However, a cloud of confusion soon emerged. On Monday, White House Press Secretary Karoline Leavitt reassured reporters that talks with Iran were "continuing and going well," adding that "what is said publicly is, of course, much different than what’s being communicated to us privately." In stark contrast, Iran’s foreign ministry spokesperson contended that no direct negotiations had occurred with the United States during the 31 days of conflict, noting that only “messages” had been relayed through intermediaries such as Pakistan. Nevertheless, this contradiction did not seem to dampen the optimistic sentiment prior to Tuesday’s main trading session.
The oil market reacted to the disseminated information with a more cautious perspective. Brent crude oil prices increased nearly 5% to settle at $118.35 per barrel, marking the highest closing price since June 2022, after Bloomberg reported that Iran had attacked a Kuwaiti oil tanker in Dubai waters. While the oil market seemed to anticipate continued conflict, stock traders appeared to favor resolutions, yet both markets ultimately ended the day positively.
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