Diplomatic Breakthrough? Stocks Surge on Iran Deal Hopes

Stocks Jump on Iran Deal Hopes

Wednesday, U.S. President Donald Trump said that the United States is in the ‘final stages’ of talks with Iran (according to the Pool Report). Work is underway to finalize the text of a Washington-Tehran agreement, according to Al Hadath sources, with negotiations advancing in earnest. Sources say a final deal could be announced within hours, suggesting key diplomatic steps are nearing completion.

For months, the conflict in the Middle East has induced liquidity, unexpected ‘tape bombs’, uncertainty, and higher energy prices. However, until an actual deal is signed, investors should take these headlines with a grain of salt. Prior to Wednesday’s deal hopes, the U.S and Iran have reportedly been close to a deal several times before Iran later backed out.

Strait of Hormuz Sees Relief

Before the current ceasefire between Iran and the United States, the U.S. military decimated the majority of the Iranian Navy and military forces. However, although Iran does not have a military that can compete with the U.S., it caused havoc in the Strait of Hormuz by using small, heavily armed boats, unmanned drones, and mines. That said, the U.S. recently countered Iran’s aggression by creating a naval blockade on the critical chokepoint.

On Wednesday, oil bears finally got some positive news. According to the Marine Traffic tracker, ships are suddenly surging through the Strait of Hormuz. Meanwhile, according to Bloomberg, NATO is discussing deploying troops in the Strait of Hormuz to help ships pass through the waterway if it is not reopened by early July. After printing fresh 52-week highs yesterday, the US Oil Fund ETF (USO), dove 5% triggering a false breakout.    

Image Source: TradingView

As the Wall Street adage goes, “From false moves come fast moves.” Additionally, a surge in U.S. oil exports could help to quell energy prices. Last week, the U.S. exported 5.6 million barrels of oil, the 2^nd-highest ever.

Image Source: Zerohedge

Equities Find Support, Break Out of Bull Flags

Outside of oil, AI stocks continued to shred higher. Arm Holdings (ARM) jumped more than 15% to a fresh all-time high. Astera Labs (ALAB) also hit fresh highs after presenting at a conference yesterday and offering Wall Street a bullish outlook. However, NVIDIA (NVDA) will report earnings tonight. Because NVDA is the largest publicly traded company and is the premier AI bellwether, Wall Street investors will be monitoring its earnings release closely.

Bottom Line

Ultimately, while Wednesday's rapid-fire headlines provided a welcome relief valve for a market bogged down by geopolitical friction, the real test of endurance lies ahead. If history is any indication, "false moves" in oil can lead to incredibly swift structural shifts in the market, especially as historic U.S. crude exports loom in the wings to cap energy prices. For now, equities have successfully found their footing, but investors must balance this newfound geopolitical optimism with the immediate fundamental reality of NVIDIA's earnings tonight, which will undoubtedly dictate the next major macro leg for Wall Street.

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