From one side, the S&P 500 is breaking records, the Nasdaq is soaring like there’s no tomorrow, and Wall Street is celebrating.
And on the other? Gunfire at ships in the Strait of Hormuz, while Trump says he has “good news.”
RECORDS IN THE MARKETS
Let’s start with the markets. On Friday, the S&P 500 closed above 7,000 points for the first time in history. At 7,126, to be exact.
And the Nasdaq? It posted 12 straight winning sessions. TWELVE. In a row. Its longest winning streak since 2009.
So why all this euphoria you might be asking. The answer is a mix of two things. First, hope that the war in the Middle East is coming to an end. Second, earnings season has just begun, and so far it looks solid. Specifically, out of the 32 S&P 500 companies that have reported results, 78% have beaten expectations.
But there is a big catch. Piper Sandler is warning that the market moved from oversold to overbought far too quickly. What does that mean? It means this rally is standing on fragile technical foundations. And analysts at Seeking Alpha say that earnings growth estimates of 12.5% may be overly optimistic, given the geopolitical risks.
In other words? Yes, records. But records built on glass legs.
THE STRAIT OF HORMUZ
And this is where things get even more interesting. Because while the markets were celebrating, chaos was unfolding in the Strait of Hormuz.
Let’s take it from the beginning. On April 7, the US and Iran agreed to a two-week ceasefire. Oil collapsed, with WTI falling 16% in a single day to $94.41. That was its biggest one-day drop since April 2020. On Thursday, Iran’s foreign minister said the Strait was “fully open” to commercial vessels. Oil then dropped below $84.
But then Saturday came. And everything changed.
Iran closed the Strait again. It announced that it would not reopen it unless the US lifted the naval blockade on Iranian ports. Shipowners also reported gunfire in the Strait, and tankers were making mass U-turns.
Let’s remember that before the war, 20% of the world’s oil passed through that Strait. So this is the biggest oil supply disruption in history. And now the Strait is effectively shut again. Within 24 hours, we went from “fully open” to gunfire. Yes, you read that right.
THE TUESDAY THAT COULD DECIDE EVERYTHING
And this is where the most critical part comes in. The ceasefire expires on Tuesday, April 21.
Speaking from Air Force One on Friday night, Trump said there was “pretty good news” on the negotiations. But he refused to give details. He also said that if there is no deal by Wednesday, the ceasefire may not be extended. “I think it’s going to happen,” he said. But with no guarantees.
On Monday, American and Iranian representatives will sit down at the table once again. If something positive comes out of it, the markets will probably rally even further. If not, those record highs in the S&P 500 and Nasdaq could reverse very quickly.
Because let’s not forget something. In the meantime, Trump also threatened China with 50% tariffs after reports that Beijing was preparing a weapons shipment to Iran. A Trump-Xi summit is scheduled for May 14-15 in Beijing. And as if that were not enough, 24 US states have filed lawsuits against the new tariffs.
INVESTING
So what we are seeing is geopolitical risk everywhere. And right now, the market is behaving as if none of it exists.
Now you may ask me... could nothing happen and the market keep moving higher? Of course. But the opposite could also happen. And that is exactly what makes this week so critical.
