Wall Street is rushing ahead of a conflict that has not yet concluded. On Friday, April 17, local time, Iran announced the reopening of the Strait of Hormuz to commercial shipping. Combined with news of a ceasefire between Israel and Lebanon's Hezbollah, a wave of risk-on sentiment swept through global markets.

The S&P 500 index closed up 1.2%, marking its third consecutive session at a fresh record closing high. The Nasdaq Composite extended its winning streak to 13 days, matching its longest such run since 1992. The Dow Jones Industrial Average surged 1.8%, fully erasing all losses incurred since the conflict began.

The S&P 500 has gained 9% so far this month, its strongest monthly performance since 2020. The index's rebound from its March low to a new all-time high took just three weeks. According to Rocky Fishman of Asym 500, this represents the fastest recovery of its magnitude on record.

Simultaneously, the U.S. dollar briefly erased all its gains made during the conflict, while WTI crude oil futures plummeted over 11% in a single day.

However, numerous market participants warn that this exuberance is built on an unstable foundation. Reports indicate that the "opening" referenced by Iranian Foreign Minister Araqchi actually requires commercial vessels to "coordinate" with Iran for passage, a significant contrast to the market's interpretation of "completely free transit." Furthermore, former President Trump stated that the U.S. would maintain its naval blockade of the Strait of Hormuz until a final agreement is reached with Iran.

**Equities: Fear of Missing Out Dominates, Fundamentals Provide Support** The market's rapid rebound is partly driven by a fear of missing out. Following a significant rollback of tariffs last year, markets experienced a sharp rally that caught many short sellers off guard. This time, traders are placing bets on a full recovery before supply chains, energy infrastructure, and consumer confidence have substantially recovered. Commodity Trading Advisors (CTAs), previously shorting stocks, were forced to cover their positions and chase the rally.

However, the rebound is not solely driven by sentiment. Underlying support comes from the resilience of the U.S. economy, a stronger-than-expected earnings season, and enthusiasm for AI demand. According to Marcella Chow, Global Market Strategist at J.P. Morgan Asset Management, 2026 earnings growth expectations for the S&P 500 have been revised up by nearly 3 percentage points. She stated, "Even if conflict-related factors shave mid-single digits off EPS growth, it still implies the potential for double-digit profit growth."

Chris Hussey, Chief U.S. Equity Strategist at Goldman Sachs, noted that three major market headwinds showed tentative easing this week: increased expectations for a resolution to the energy crisis, no further escalation of stress in private credit markets, and a divergence in perceptions of AI disruption risks.

The "Magnificent Seven" tech stocks have not experienced a single down day since March 27, collectively gaining about 19% during that period. This week, Tesla surged nearly 15%, while Microsoft gained 14%. Benefiting from the sharp drop in oil prices, airline and cruise line stocks led the S&P 500 higher, with Royal Caribbean Cruises jumping 7.34% and United Airlines climbing over 7%.

**Oil: Futures Plunge, but Physical Market Remains Disrupted** Oil is the asset where the gap between market optimism and physical reality is most pronounced. WTI crude futures fell over 11% on Friday, ending the week down more than 13% and dropping to their lowest level since March 10. They also breached their 50-day moving average for the first time since early January. U.S. crude has now given back approximately 70% of its gains since the conflict began.

However, reports indicate that physical crude prices remain elevated, reflecting ongoing issues such as disrupted shipping routes, high tanker freight rates, and depleted inventories. Analysts believe these problems could take weeks or even months to normalize.

Brij Khurana, Portfolio Manager at Wellington Management, succinctly noted, "The path of oil prices determines the path of interest rates, it's that simple." He added that lower oil prices would feed into inflation expectations, suggesting yields could "drift lower by summer."

**Bonds: Rate Cut Expectations Surge, but Short-End Remains Cautious** The plunge in oil prices directly fueled expectations for interest rate cuts. Data from interest rate futures now implies a roughly 70% probability of at least one Fed rate cut this year, a sharp increase from about 30% the previous session. The yield on the 10-year Treasury note fell 7 basis points to 4.24%, its largest single-day drop since March 30. The 2-year Treasury yield also fell 7 basis points to 3.70%, dipping below the federal funds rate of 3.75% for the first time in over a month.

Yet, the bond market overall remains cautious. Andrew Chorlton, Chief Investment Officer for Fixed Income at M&G Investments, stated, "Financial markets are pricing very little risk beyond the short end of the interest rate curve. Inflation expectations one or two years out—there's no risk premium being priced in right now." Since the conflict began, the 2-year Treasury yield has risen about 30 basis points, while the UK 2-year gilt yield has increased about 60 basis points. Before the conflict, traders anticipated multiple Fed rate cuts this year; now, markets price in only about a 60% chance of a single cut.

Gennadiy Goldberg, Head of U.S. Rates Strategy at TD Securities, maintains a cautious stance: "This all shows the market is extremely sensitive to news flow from the Middle East. Many investors will remain on the sidelines, wanting to confirm that developments are sustainable and not subject to a weekend reversal."

**U.S. Dollar: Erases Wartime Gains Intraday, but Pares Losses** The U.S. Dollar Index experienced a V-shaped recovery on Friday. It initially plummeted over 0.6% to a seven-week low before rebounding to end little changed from Thursday's New York close.

Reports suggest hedge funds have established substantial short positions against the dollar. George Vessey, a strategist at Convera, analyzed, "Dollar weakness is primarily due to the market pricing out geopolitical risk premiums, but this is not the start of a structural dollar decline. The Fed's next move remains uncertain, inflation data is coming in above expectations, and the economy remains resilient."

Bank of America's Cross-Asset Risk indicator—a composite measure of volatility across global stocks, rates, currencies, and commodities—is on track for its second-fastest monthly decline on record this month, surpassed only by the recovery phase following the initial COVID-19 shock.

**Risks: Markets Priced for 'War's End,' but Core Issues Unresolved** Several market participants have issued warnings about the current optimism. A former trade official wrote, "The Iran crisis appears to be moving towards a tentative and fragile resolution. Even if an agreement is reached, it will leave many core issues unresolved."

Daniel Ivascyn, Group Chief Investment Officer at PIMCO, stated, "The market is viewing a gradual de-escalation as the most likely outcome, but the tail risks are very large. This is a real inflation shock."

Laura Cooper, Head of Macro Credit at Nuveen, which manages $1.4 trillion, offered a more direct assessment: "The real mispricing in the market is treating this conflict as if it's over, while underlying vulnerabilities persist."

John Flood, a Liquidity Strategist at Goldman Sachs, also noted that CTA quant trend-following strategies bought approximately $33 billion in S&P 500 exposure this week, but the peak buying pace has likely passed. He said, "The market is now set up for a potential pullback next week."

Historically, the market's reflex to look past geopolitical events has almost always proven correct—global equities fell just 0.6% on the day the Russia-Ukraine conflict began. However, as reported, Maxence Visseau, founder of Arkevium, pointed out that the two exceptions occurred during periods of sustained oil supply disruption: 1973 and 1990. Whether this conflict joins that short list depends on developments in the coming weeks.