Investors buoyed by Iran de-escalation as markets rally

The S&P 500 has risen for seven straight days through Thursday’s close, a winning streak U.S. stocks have not otherwise seen all year. The move comes as geopolitical tensions ease, with the U.S. and Iran agreeing to a tentative ceasefire and heading into weekend negotiations—prompting investors to bet on a return to normal conditions.

Investors focus on de-escalation, but the Fed remains a key variable

Market experts say investors appear to be taking the “buy the rumor, sell the news” approach in response to the tentative U.S.-Iran ceasefire. Even so, a major hurdle remains: what the Federal Reserve does in the coming months, particularly as it transitions to a new chair.

Risks still include whether the Strait of Hormuz actually reopens and how the Fed—expected to transition to a new chair—will respond to stubbornly high inflation.

What Morgan Stanley says about timing and risk/reward

Mike Wilson, Morgan Stanley chief investment officer and head of U.S. equity strategy, said in a Thursday interview with CNBC that markets are forward-looking and investors should focus on risk/reward rather than pinpointing exact timing.

“The markets trade in the future… Maybe we might go lower here or there, but you know, the idea of putting the capital to work is not to call the exact day but call it when there’s good risk/reward.”

Prediction markets: Iran ceasefire and oil price expectations

Prediction market bettors are placing high odds on both a political development and its commodity implications. They assign an 80% probability that President Donald Trump announces an end to military operations against Iran by June 30. They also set a nearly 75% probability that crude oil prices will fall to $85 or lower—a level last seen in mid-March—by the end of June.

Goldman Sachs outlook for Brent under different scenarios

Goldman Sachs said the path for crude prices depends on the extent and speed of any recovery in traffic at the Strait of Hormuz. The firm’s commodities strategists have not changed their medium-term forecasts for Brent, the global oil benchmark, to average $80 per barrel in the fourth quarter.

That forecast assumes traffic flow through the strait starts to rise over the weekend and that oil exports return to pre-war levels over the next month, according to Daan Struyven, Goldman’s head of global commodities research.

However, Goldman outlined alternative outcomes if the ceasefire and reopening are delayed:

• If the ceasefire doesn’t hold and the Strait of Hormuz reopening is postponed by a month: Brent could still average $100 per barrel in the fourth quarter of 2026 if oil production in the Persian Gulf fully recovers.
• If conditions are worse and reopening is delayed further: Brent prices could average $115 in the fourth quarter.

Fed transition and rate-cut expectations

Wilson said the final hurdle for investors is the Federal Reserve transition. Once markets know who the new Fed chair will be, investors may look toward the second half, when the central bank could be more willing to cut rates, as indicated by Trump nominee Kevin Warsh.

Still, traders are not betting on rate cuts as decisively as they are on oil. Estimated probabilities that the Federal Reserve will lower benchmark rates by 0.25 percentage point in September are currently around 8%.

Election-year pattern to watch

Macro Risk Advisors’ John Kolovos told CNBC that there are high odds the market low is in. He added that stock corrections in mid-term election years tend to occur in the back half of the year, closer to September and October.