Stock market rallies following news war in Iran could soon end

If you had woken up today and heard someone say Wall Street’s tech sector rose more than 3 per cent overnight, you would expect it to be promptly followed by “April Fools’ Day”. 

But no, US stocks surged overnight, with the Dow Jones Industrial Average leaping 1,125 points on Tuesday.

The benchmark S&P 500 gained 2.9 per cent for its largest gain since May 2025.

The Dow Jones Industrial Average rallied 2.5%, while the Nasdaq composite jumped 3.8 per cent.

Hope began to build on Wall Street about a possible end to the war with Iran.

‘Bullish’ news headlines

The news headlines supported that view.

Indeed, optimism entered the market late Tuesday, Australian time, when the Wall Street Journal reported that President Donald Trump had told aides he was willing to end the US military campaign against Iran even if the Strait of Hormuz remained largely closed.

The narrow waterway facilitates the flow of about 20 per cent of the global oil supply.

Overnight, Australian time, Trump urged countries dependent on oil to “build up some delayed courage” and “go get your own oil”.

This coincided with Iran’s President Masoud Pezeshkian being reported as saying Iran was seeking “an end” to the war.

China and Pakistan — which have done their level best to broker peace in this war — also issued a five-point proposal to restore stability and calm in the Middle East.

Then, earlier today, Trump, in the Oval Office, gave a firm indication the US would withdraw from the conflict within two or three weeks.

Share markets couldn’t get enough of the positive news.

“There were suitably bullish headlines,” Capital.com’s Kyle Rodda wrote.

Feeding frenzy

With all of that said, there have been no official signals the war is about to end, nor is the Strait of Hormuz any safer to navigate.

Indeed, cash cascaded into Wall Street largely after the new headlines hit trading terminals.

“The headlines served as a spark,” Rodda said.

Put simply, those that manage superannuation funds (or pension funds as they’re often called), hedge funds, and bank treasury departments, were facing a very rough month and quarter of returns.

Some major market indices are down close to 10 per cent since the market’s peak in late February.

That had left some fund managers with a mandate to have a certain percentage of their portfolio invested in shares coming up short, so they had to buy last night to top up.

Other money managers overnight sensed some significant buying activity in the market, and they piled in, buying up stocks, to help boost their quarterly performance.

The process fed on itself.

“The end result was a huge rally on Wall Street that has many market participants feeling ebullient that the markets are pricing in an end to the war,” Mr Rodda said.

Need for ‘concrete’ evidence

But it may end up a cruel April Fool’s joke.

Westpac says it expects disruption to the oil market to continue until late April, and forecasts oil prices to “average” around $120 a barrel in the second quarter of 2026.

The March contract price of global oil benchmark, Brent crude, was trading at close to $105 a barrel mid-morning Wednesday.

Oil prices above $US100 a barrel are hardly a vote of confidence from energy traders in a rapid return to the world’s pre-war level of oil and gas supplies. 

Veteran stockbroker Marcus Padley has dismissed it all as “noise” and says very little has changed.

“At this point, we have a lot of noise about the rally, but nothing certain about peace developments — the Iran statement is “unconfirmed” so far,” Marcus Padley said.

“We need more concrete evidence that something has changed for real, that Iran has offered peace on doable terms and that the Strait of Hormuz is going to open.

“We have none of that”

Padley, who manages his own fund, said candidly he was not buying into the market for his clients today.

“We are not buying today but have come very close to doing so,” he said.

“We need more than an exhaustion rally. We need more than murmurs of peace.

“We may get them. But at the end of the month, this could easily be a furphy.”

Stagflation concerns

The key problem for the global economy and financial markets remains the prospect of stagflation.

This occurs when a supply shock pushes costs, and therefore inflation, higher, followed by a period of low economic growth.

It’s usually followed by higher interest rates and rising unemployment.

Most Australian banks do not see this as a likely outcome in Australia, yet. But concerns remain.

“Our base case for now is that US and Iranian negotiations are successful over coming weeks, as there are clear signs that President Trump is looking for an “off-ramp”,” AMP’s deputy chief economist Diana Mousina wrote.

“However, it may take a while for oil prices to normalise again.

“So higher inflation is likely for roughly six months.

“Consumer spending will slow and GDP growth will be lower than it would have been.”

The Australia 3-Year bond yield is currently yielding about 4.6 per cent.

This means money markets are currently pricing in the prospect of two more RBA interest rate hikes in the current cycle.

Westpac has as many as three, although CBA expects just one more before two rate cuts next year.

When weighing up whether Wall Street’s optimism about the war ending was accurate, it’s worth analysing the bond market.

Based on recent trading, it needs more convincing, as do many analysts.