Markets calm on hopes for US-Iran truce; Hormuz risk remains

Markets moved higher as investors priced in the prospect of a US-Iran truce ahead of a new round of talks on Thursday. WTI crude dropped more than 13% to trade around $90 a barrel, while the S&P 500 and Nasdaq traded close to record highs. The Strait of Hormuz remained a central risk for energy markets.

President Trump described the conflict as “very close to over” and told investors to expect “an amazing two days ahead.” Traders have increased the odds of a negotiated outcome after talks broke down over the weekend when U.S. Vice President Vance walked away from negotiations in Islamabad. The shift in sentiment has reversed recent losses across oil and risk assets in the past two sessions.

Equity flows showed a rotation back into growth and technology stocks as the artificial intelligence trade regained momentum. The S&P 500 traded roughly 0.5% below its last record high, and the Nasdaq was about 1.6% under its peak. Market participants are also pricing a scenario in which a brief rise in inflation proves transitory, reducing expectations for further central bank rate hikes.

Oil’s decline has been a key factor in easing broader market fears. WTI has fallen from Monday’s peak to near three-week lows just above $91 a barrel, reflecting reduced concern about prolonged supply disruptions. Traders are reassessing the likelihood and possible duration of military interference with shipping routes and Gulf oil production.

Despite the calmer tone, observers warn the Strait of Hormuz remains the primary operational risk. If Iran continues targeting energy infrastructure in the Gulf, supply interruptions would affect buyers in Asia and markets in Europe. Some analysts expect Tehran may accept limited ceasefire terms and permit somewhat freer passage through the strait, but they do not anticipate a full return to pre-crisis conditions.

For now, investors are trading on the assumption that negotiations will lower tensions. Markets are likely to remain sensitive to any renewed attacks or disruptions in the Strait of Hormuz until concrete, verifiable changes are observed.