MW This strategist is using prediction-market shifts to calculate what happens when an Iran deal is announced

By Jamie Chisholm

Falling oil prices will calm inflation concerns and ease rate hike fears

An Iranian flag flutters as ships remain anchored in the Strait of Hormuz near Larak Island, Iran. Traders are hoping a peace deal will see the SoH quickly re-opened.

Hope is building that the U.S. and Iran will soon announce a concrete peace deal, reducing geopolitical tensions and improving oil flow though the Strait of Hormuz.

Some observers, such as Nomura's cross-asset strategist Charlie McElligott, think confirmation of a deal may trigger a sell-the-news pullback for stocks as already over-exuberant positions are unwound.

But most analysts believe that relief the war is over can further energize risk appetite. That's the view of Citadel Securities' macro strategist Frank Flight, who, in a note published Thursday, lays out why he's confident of an imminent peace deal and the impact that may have on various asset classes.

Recent weeks have seen a string of optimistic reports about a peace deal, which have been swiftly rolled back by one side or the other. Flight is more certain that a deal will be coming in a few days for two reasons.

First, internet connectivity in Iran data has normalized to 86% of pre-conflict levels in recent days. "While data is imperfect and internet use remains heavily censored; we think the reports of restoration of connectivity implies the Iran regime expects a conclusion of the conflict is imminent," Flight says.

Second, recent public appearances of Iran's senior military figures suggest Tehran sees reduced risk of targeted strikes, "which in turn points to a higher perceived probability that talks between the U.S. and Iran are moving toward a deal."

So the big question for investors is how will markets react. Flight says that the action earlier this week is informative. Fresh reports of progress on a memorandum of understanding between Washington and Tehran came over the holiday weekend when there was very little other market-relevant news, he says.

He then used the change in prediction-market implied probabilities of a normalization of Strait of Hormuz traffic to benchmark the moves in macro assets and estimate how much further markets could run.

On that basis, Citadel estimates that a full reopening of the Strait by the end of July would imply a fall in the oil price that would help 10-year Treasury yields BX:TMUBMUSD10Y dip 12.5 basis points as inflation fears subside and central banks row back on their recent more hawkish stances. The S&P 500 SPX would enjoy a quick 1.71% rally and the dollar index DXY would drop 0.53%.

Flight adds that if oil starts flowing through the Strait quicker than expected, the lift to risk appetite may be greater.

The equity markets sectors most likely to benefit from a deal will be those "with leverage to three related impulses from a Strait reopening: lower oil prices, lower rates and a still-resilient economic backdrop," he says.

Retailers XRT, homebuilders XHB and airlines JETS are the picks in this regard. "These sectors have naturally lagged the AI-led growth complex and may have more catch-up beta if the market rotates away from narrow capex-led leadership toward cyclicals and consumer discretionary exposures, boosted by a relaxation of energy prices amid a resilient macroeconomic backdrop," says Flight.

However such a shift within the market may mean problems for current investor darlings. While an increase in breadth "is likely a healthy market dynamic it may come at the expense recent winners in the semis SOXX space, and hence poses some risk to momentum," he concludes.

The markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as Treasury yields BX:TMUBMUSD10Y are little changed. The dollar index DXY is a tad higher, as oil futures (CL.1) slip and gold futures (GC00) trade around $4,560 an ounce.

   Key asset performance                                                Last       5d       1m       YTD     1y 
   S&P 500                                                              7563.63    1.58%    4.92%    10.49%  27.93% 
   Nasdaq Composite                                                     26,917.47  2.37%    8.14%    15.81%  40.37% 
   10-year Treasury                                                     4.457      -10.60   7.80     28.50   4.90 
   Gold                                                                 4546.5     0.05%    -1.93%   4.95%   36.02% 
   Oil                                                                  87.74      -10.47%  -16.76%  52.83%  44.02% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

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The buzz

The U.S. and Iran are "very close" to a peace deal, but "not there yet," said Vice President JD Vance.

A Russian drone hit in an apartment block in Romania, a NATO member.

Dell Technologies shares $(DELL)$ are surging after the computer hardware group's AI-server revenue jumped 757% in the first quarter.

A new fundraising gives AI group Anthropic a $965 billion valuation, overtaking peer OpenAI.

Shares of Gap $(GAP)$ and American Eagle Outfitters $(AEO)$ are down sharply after the clothing retailers' saw weakness in some style segments.

A rocket being tested by Jeff Bezos' space company exploded Thursday night, sending an enormous ball of fire into the sky. Shares of space stocks such as AST SpaceMobile (ASTS) are dropping.

Federal Reserve officials making comments include Vice Chair for Supervision Michelle Bowman at 9:10 a.m., and Philadelphia Fed President Anna Paulson at 9:15 a.m.

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The chart

Cboe 1-Month Implied Correlation Index. Source: SpotGamma.

The team at SpotGamma note that the Cboe 1-Month Implied Correlation Index has again just dropped below 8. The COR1M measures, via options, how closely individual stocks are expected to move together. When it's very low, it signals historically high dispersion. This acts as a contrarian bearish signal because it often means a narrow handful of mega-cap stocks are artificially holding up broader indices. In a post on X, SpotGamma says the trend shows that "froth" in the call option market - the right to buy an underlying stock - is "in full effect" and signals "the market will likely have some violent mean reversion in the not-too-distant future."

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   MU      Micron Technology 
   WIT     Wipro 
   DELL    Dell Technologies 
   AMZN    Amazon.com 
   AMD     Advanced Micro Devices 
   ASTS    AST SpaceMobile 
   MSFT    Microsoft 
   RKLB    Rocket Lab 

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May 29, 2026 08:29 ET (12:29 GMT)

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