Wall Street’s major averages posted big weekly gains, surging to new highs for three consecutive trading days, as positive developments in the Middle East—including a temporary ceasefire deal between the involved countries—raised investors’ enthusiasm.
Iran’s regime declared the Strait of Hormuz is “completely open” for all commercial vessels on Friday for the rest of the 10-day ceasefire in Lebanon. Israel and Lebanon agreed to a ceasefire. That removed the last condition Iran set for talks. Countries are expected to return to Pakistan next week for a second round of peace talks. All was fine until yesterday when the Strait was closed again.
The S&P 500 accomplished its first close above 7100 on Friday, and the Nasdaq Composite extended its winning streak to 13 consecutive days, which is the longest since 1992. For the week, the S&P 500 gained 4.5%, while the Nasdaq rose 6.8%, and the Dow added 3.2%.
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The market decided the war is ending. Oil fell more than $20 from its peak. The Volatility Indicator (VIX) fell into the teens with Hormuz open and a ceasefire in place. The week ended with the index at records and now the Strait shut.
The reality of what is happening is yet to be digested by the market. The markets and investors appear to be painting a more positive picture than what the reality is on the ground. Anyone who is counting on a quick recovery to the way it was – a total end to hostilities – could be badly mistaken, in our view.
We have a President who has declared victory and moved on from the war with Iran and has instead, begun taking jabs at the Pope. But, the war is far from over. The repercussions of the Strait of Hormuz being closed again will be felt. The earnings season has not been reassuring with market reactions being mixed.
For investors, paying attention to details and not taking a “everything will work out fine” attitude becomes more important in these uncertain times.