A major relief rally is currently unfolding, although oil prices are expected to stay elevated over the longer term.
US stock futures jumped on Wednesday after President Trump announced a two‑week suspension of planned military action against Iran, easing immediate concerns about a prolonged disruption to global energy shipments through the Strait of Hormuz.
Indeed, Dow Jones‑linked futures surged 1,315 points, or 2.8%, by 7:29 am ET, while S&P 500 futures gained 2.9% and Nasdaq 100 futures jumped 3.5%.
Brent crude has dropped around 15% in recent days to under $95 a barrel, unwinding a sharp surge driven by the conflict, while European stocks have rebounded strongly.
Relief rally gathers pace across global markets
The Stoxx Europe 600 has risen 3.8%, Germany’s DAX has advanced 4.4%, and the FTSE 100 is up 2.5% as investors quickly scale back positions tied to geopolitical risk.
A 15% drop in oil in under a week, alongside a roughly 4% surge in European equities, clearly shows how markets are reacting; they’re betting on a smooth de-escalation. However, that expectation appears overly optimistic.
As I was quoted by CBS, Yahoo Finance, Investing.com, Gulf News, Daily Mirror, Business Times, Business Money, Financial Standard, IOL, News Ghana, Financial Express, Financial Mirror, Financial Investigator, and Share Café, amongst others, markets were already braced for turmoil, with defensive positioning, heightened volatility, and energy prices priced for worst-case scenarios.
As soon as there’s even a temporary pause, that pressure eases almost immediately.
Investors had been preparing for a conflict that might have cut off a fifth of global oil supply. Once even part of that threat is lifted, money flows back into equities very quickly.
Equity markets had already hinted at expecting a de-escalation, with major indices stabilising despite lingering tensions.
The recent surge confirms that investors remain highly reactive to geopolitical developments and ready to shift quickly as the situation changes.
Lower oil offers relief, but risks remain
Tech stocks could spearhead the rebound, having been most affected by higher yields and heightened risk aversion. A drop in energy prices slightly eases inflation concerns, supporting valuations.
We anticipate significant gains in megacap tech and AI-focused companies.
Consumer discretionary stocks are set to gain as well, with lower oil translating into cheaper gasoline and stronger consumer spending.
Airlines, travel, and retail sectors are likely to benefit quickly from reduced fuel costs and a boost in market sentiment.
Financial stocks are also expected to join the rally, as greater market stability typically boosts deal-making and risk-taking, key drivers of bank profits.
Banks tend to perform better when uncertainty eases, and a pause in the conflict lowers tail risks, benefiting both credit and capital markets.
Energy stocks, on the other hand, face a more mixed outlook. They could face near-term pressure as oil prices retreat, although the longer-term supply picture remains tight. Supply constraints are still in place.
A two-week pause may ease immediate concerns but does not replenish inventories or resolve broader geopolitical fragmentation. Crude remains well above year-ago levels, reflecting ongoing supply risks.
Even a temporary reopening of the Strait of Hormuz offers only short-term relief and does not remove structural vulnerabilities in global energy flows.
Oil prices are unlikely to drop back to previous lows anytime soon, as the geopolitical premium is now built into the market. Even with de-escalation, traders will continue to account for the possibility of renewed disruption.
The next move depends on what happens next
The market’s next moves will hinge on how credible the two-week pause proves to be.
Investors are familiar with this pattern. A brief pause provides relief, but also sets a ticking clock. Market sentiment can swiftly move from optimism to cautious scrutiny.
Diplomatic developments, adherence to the ceasefire, and coordination of shipping through the Strait of Hormuz will all be closely watched.
If the ceasefire develops into a lasting agreement, the rally could continue and expand, giving industrials, emerging markets, and cyclical stocks a chance to recover.
But if the pause fails to translate into a durable resolution, sentiment could reverse quickly. Volatility would return, oil prices would surge again, and equity gains could be wiped out.
Investors are weighing potential gains against lingering risks.
This is a strong rebound, fuelled primarily by the easing of immediate fears.
However, the fundamental challenges are still unresolved.
Investors can take advantage of the rally, but the next phase will hinge entirely on whether diplomatic efforts produce a lasting resolution beyond the temporary pause.
To read my previous blog post, click here.