Normally, when a war or conflict winds down, you’d expect stock markets to “bounce” because fear is fading. But that’s not what happened this time. Even though the US and Iran reached a temporary agreement, and oil prices did fall, stocks and other risk assets haven’t benefited as much as you’d think. Analysts at Deutsche Bank explain it comes down to these four reasons.
1. The Fed turned out “tougher” than markets had braced for
Picture the stock market as someone about to smile over good news (the conflict easing) — and then bad news suddenly cuts in front of it. That bad news is the US Federal Reserve signaling it might “raise interest rates” again this year, because it’s still worried about inflation.
What do higher rates actually mean? Simply put: loans get more expensive, making it harder for people and companies to borrow money to invest or run a business. After the Fed sent this signal, the yield on US government bonds (a gauge of how “expensive” borrowing has become) jumped to its highest level in over a year. So most of the cheer from the peace deal got “cancelled out.”
2. Markets already knew this war wasn’t “permanent”
This part is interesting: markets never panicked over the war enough to send oil prices to unrealistic highs in the first place, because everyone already assumed the conflict would eventually end. So oil futures had already “priced in” lower prices from the start.
It’s like knowing in advance that the rain will stop tomorrow — you don’t get that excited when it actually stops, because you’d already prepared for it. The market was the same: once the peace deal actually happened, there was no “surprise” left to push oil sharply lower or stocks sharply higher beyond what was already expected.
3. Stocks had already climbed too much beforehand
Over the past two months, the S&P 500 (the major US stock index) had already risen 16%. That sounds great, but it’s actually quite “abnormal” — since the end of World War II, a rally this fast over such a short period has happened only four times.
What’s more concerning: three of those four times happened when the economy was “recovering from a recession” (meaning stocks had crashed hard first, then bounced back). But this time the economy isn’t in a recession. The only comparable case in the past was the few months “before the 1987 Black Monday crash” (the day global stock markets collapsed in a single session). So Deutsche Bank sees stocks that have risen this fast as having very limited “room to climb further,” even with good news coming in.
4. The real-world situation still hasn’t returned to normal
Even with a peace deal in place, in reality, oil shipments through the “Strait of Hormuz” (the world’s most important oil transport route) have only returned to a fraction of pre-war levels, and Brent crude is still about 30% higher than where it started the year.
In simple terms: “on paper” the war may look resolved, but “in reality” the situation hasn’t gone back to normal. So the market isn’t quite ready to celebrate fully.
So, is there still cause for concern?
Deutsche Bank says the longer-term picture still has reasons to be optimistic, because part of the reason the Fed has to be strict on rates is that the “US economy is doing better than expected” — which is a problem markets can handle, not a sign of an economic collapse like the one that led to the 1987 crisis.
The short version: Good news (the conflict easing) collided with bad news (the Fed possibly hiking rates), stocks had already gotten too expensive, and the real situation on the ground still isn’t 100% back to normal — so markets chose to “wait and see” rather than rush to celebrate.
Source: https://th.investing.com/
