The reopening of the Strait of Hormuz on Friday sparked a widespread risk-on sentiment in the market: the U.S. stock market surged, oil prices plummeted, U.S. bond yields fell. The market believed the worst was over, and the global energy supply disruption had eased.
However, these actions may prove to be premature.
At 9:20 a.m. on the 18th (Saturday), reports of two oil tankers being denied passage in the Strait of Hormuz first broke the calm. Trump immediately applied pressure: if no agreement was reached by Wednesday, the U.S. would continue to block Iranian ports. At 4 p.m. that day, Iran announced a reinstatement of restrictions in the strait and fired upon ships attempting to pass—two Indian vessels turned back to the Persian Gulf after being shot at, nearly halting strait traffic.
Traders reacted swiftly on TradeXYZ, with the crude oil contract up around 4.52% from the weekend closing price, and the S&P index contract down nearly 0.8%.
Trump then shifted tone, revealing envoy Steve Witkoff would travel to Pakistan on Tuesday for talks with the Iranian side, potentially extending the negotiation window to Wednesday.
Trump then took to Truth Social, stating, "The deal we are offering is very fair and reasonable, I hope they accept it, because if they don't, the United States will destroy every power plant and bridge in Iran."
Iran, evidently not buying into this, at 1:53 a.m. on the 20th, announced its refusal to participate in a second round of talks; according to Axios, Tehran's assessment is that the U.S. may launch an attack before the ceasefire expires on Tuesday night.
Impacted by this news, oil surged once again, erasing the gains from the 18th, and correspondingly, the S&P index dropped below the low point of the 18th.
On individual stocks, three crypto stocks notably lagged behind other stocks.
It is foreseeable that the exuberant sentiment that pervaded the market last week will be punished. This week's market trend will largely depend on whether Iran can maintain its non-negotiating stance.
