What the Failed Peace Talks Mean for Markets
Peace talks between the U.S. and Iran ended without any progress on opening the Strait of Hormuz
(which is the market’s main focus). As a result, President Trump ordered a blockade of the Strait
on Sunday, incrementally escalating tensions. From a takeaway standpoint, the lack of progress and
incremental escalation is clearly negative (especially when we consider the strength of the rally
last week), but it is not a shockingly negative surprise.
First, the U.S. and Iran have been negotiating on various topics for over a decade with no real
progress, so it was unrealistic to think they’d come to an agreement in one day.
Second, the blockade of the Strait isn’t a “worst-case” escalation and was effectively the best of
a basket of bad choices for the president. And while the market response will be negative, it
should not be a demonstrably negative reaction. I say that because the market’s main fear, the
event that would be demonstrably negative, is an escalation towards a ground invasion or a
resumption of hostilities that results in the destruction of Gulf states’ infrastructure (e.g., the
Saudi pipeline and others).
Markets always assumed elevated oil prices even after the ceasefire and that didn’t change over the
weekend. And the main positive is that the ceasefire is still in place, meaning we’re not yet on a
parabolic escalation that results in widespread Gulf attacks that sends oil to $200/ bbl. That is
the main fear for markets (and the truly negative event).
The ceasefire substantially reduced the chances of that happening, but it was never going to be in
a straight line. From a market reaction standpoint, we should see a moderate decline in higher oil
prices, but that’s as much a function of last week’s rally being overdone to the upside as it is
the weekend’s news (which again was negative, but not shockingly so).
Instead, we are left with the market we had: A volatile environment driven by headline whiplash and
elevated oil prices, and the longer oil stays elevated, the greater the stagflation risks. From a
strategy standpoint, we continue to think this environment isn’t bad enough, at this point, to
materially de-risk and instead continue to want to “hide” in minimum-volatility ETFs.
We continue to think those are the areas that can weather the storm until the outlook warrants
getting more aggressive. We remain moderately conservatively invested and will
remain so.
Source: Sevens Report 4-14-26