Stocks Rally on Ceasefire Amid Biggest Short Squeeze Since 2020
(Bloomberg) — US stocks advanced in a broad rally as the ceasefire deal between the US and Iran boosted optimism that the worst part of the Middle East conflict is over, pushing money managers off the sidelines.
The S&P 500 Index soared 2.5% to the highest level since early March. More than 400 stocks in the S&P 500 traded in the green with the index breaking above its 200-day and 50-day moving averages. The Nasdaq 100 climbed 2.8% while the Dow Jones Transportation Average gained 3.2% to close at an all-time high. The Russell 2000 Index rose 3%. The Cboe Volatility Index hovered around 21.
“This is more of a relief rally than anything sustainable and we believe that ultimately we will not get anything satisfactory for either side, but taking the temperature down a notch is all that the market desired,” said Joe Gilbert, portfolio manager at Integrity Asset Management.
The S&P 500 posted its sixth straight day of gains, the longest winning streak since September, as investors raised their exposure to US stocks on hopes that the US-Israel war on Iran will end soon and bring energy costs down. Energy was the only sector in the S&P 500 that traded in the red on Wednesday as oil prices fell to around $96 a barrel.
“The drop in oil prices eases perceptions of future inflation, though the only modest improvements in bond yields and rate cut expectations tells us that fixed-income traders have a more sober view about those prospects than stock traders,” said Steve Sosnick, chief strategist at Interactive Brokers.
A growing number of Federal Reserve officials worried the Iran war could further stoke inflation and wanted to make clear following their March meeting that the central bank may have to consider raising interest rates.
Meanwhile, investors are trying to gauge whether the ceasefire deal marks just a temporary halt to hostilities or a longer-term truce.
The sharp market rebound had hedge funds rushing to close out bets against US stocks at a pace not seen since the market rebounded from the crash set off by the pandemic in March 2020. Goldman Sachs Group Inc.’s trading desk said that hedge fund managers sharply accelerated the covering of short positions tied to macro products — like major indexes and exchange-traded funds — late Tuesday, just after President Donald Trump announced the temporary ceasefire deal. The bank said the volume of such unwinding is on track to reach the levels seen early in the pandemic.
JPMorgan Chase & Co.’s trading desk turned tactically bullish after modeling three scenarios ahead of Trump’s Tuesday deadline. “This ceasefire should trigger a re-risking potentially similar to the post-Liberation Day pivot,” wrote Andrew Tyler, JPMorgan’s head of global market intelligence. “How far could this go? Breaching 7,000 feels likely as euphoria returns to markets.”
One strategist sees the potential for the S&P 500 to rally the way it did in 1991, when an oil shock tied to the first Gulf War faded and money flowed back into tech, financial and consumer companies. Wednesday’s ceasefire-fueled market surge is similar to the euphoric reaction at the end of Iraq’s invasion of Kuwait: The S&P 500 jumped 12.4% in the three months after oil prices peaked in October 1990, said Sam Stovall, chief investment strategist at CFRA. That market reaction could “serve as a guide” for what may happen next.
Goldman traders also said that investors should keep an eye on systematic funds that follow the stock market direction. Demand for stocks from Commodity Trading Advisors, or CTAs, now “kicks in mechanically and should persist” while “volatility compression becomes a powerful tailwind,” Richard Privorotsky, partner at Goldman Sachs International, wrote in a Wednesday note to clients.
Still, he warned that the market will try to move past Iran as the stock market has largely retraced a large portion of the drawdown. “Ceasefires are fragile by definition and we’ve already seen strikes overnight across the Gulf,” Privorotsky wrote.
To Michael O’Rourke, chief market strategist at JonesTrading, today’s rally is a major selling opportunity for investors. “Investor enthusiasm appears excessive given the uncertainty surrounding the deal,” he wrote. “The only bullish factor investors can have real confidence in is President Trump’s urgency to extricate the US from the region.”
The S&P 500’s relative strength index, a technical momentum indicator that measures speed and scope of price changes, notched its largest move higher over a six-day period in more than four decades, according to Bloomberg data.
The S&P 500 also breached above its 50-day and 200-day moving averages.
“A reclaim of the 200-day moving average is a meaningful step in reversing the correction but now it comes down to confirming the low is in,” said John Kolovos, chief technical strategist at Macro Risk Advisors.
In corporate news, Meta Platforms Inc. debuted its latest artificial intelligence model Wednesday — its first since Chief Executive Officer Mark Zuckerberg embarked on a multibillion-dollar overhaul of the company’s AI organization to keep pace with rivals. Exxon Mobil Corp. said 6% of its global first-quarter production was knocked out as the Iran war paralyzed much of the Persian Gulf energy industry. Delta Air Lines Inc. expects to incur more than $2 billion in higher fuel costs through June because of the Iran war. And Levi Strauss & Co. raised its projections for the year after reporting better-than-expected quarterly results.
In the IPO space, Arxis Inc., a maker of electronic and mechanical parts for aerospace and defense firms, is seeking to raise as much as $1.06 billion in its US initial public offering.
Sectors to Watch:
Energy stocks are falling, following a decline in crude prices Shares of software companies slumped on Wednesday as Anthropic launches Claude Managed Agents and Meta unveils a new AI model Chip, memory and storage stocks are rising on improving risk sentiment — if the Strait of Hormuz reopens it would also improve the supply of helium, which is used in the production of semiconductors Mining shares gain as bullion climbs Shares in airlines and cruise operators are rising on the prospect of fuel prices stabilizing ©2026 Bloomberg L.P.
