Stocks Rally on Ceasefire Amid Biggest Short Sqeeeze 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% as of 12:54 p.m. in New York, its biggest intraday gain since late 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. Meanwhile, the Nasdaq 100 climbed 3.2% while the Dow Jones Transportation Average gained 2.5% and is on track to close at an all-time high. The Cboe Volatility Index hovered near 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 sharp rebound has 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.
Currently, the S&P 500 is on pace for its sixth straight day of gains as investors raise their exposure to US stocks, hoping that the US-Israel war on Iran will end soon, bringing the cost of energy down. Energy was the only sector in the S&P 500 that traded in the red on Wednesday as oil prices fell to around $95 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.
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.
The uncertain economy and dangerous geopolitical backdrop also has investors buying into technology’s most popular haven trade: dividend-rich telecommunications stocks. After a dismal 2025, telecom is one of this year’s top performing sectors in the S&P 500, rising more than 7% while the broad benchmark is down about 1%.
At the same time, investors are trying to gauge whether the ceasefire deal marks just a temporary halt to hostilities or a longer-term truce.
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.”
Goldman traders including Matthew Kaplan warned that investors should expect “a squeezy macro tape today” as hedges or short positions are unwound. Goldman also flagged 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.”
From a technical perspective, the S&P 500 has breached above some of its key 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, 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. Half of those outages were concentrated at a liquefied natural gas complex in Qatar in which Exxon is a partner, the company said on Wednesday. Two LNG production lines, or trains, were damaged.
Delta Air Lines Inc. expects to incur more than $2 billion in higher fuel costs through June because of the Iran war, prompting the carrier to tread carefully and stick to its previous full-year profit forecast.
Levi Strauss & Co. raised its projections for the year after reporting better-than-expected quarterly results, citing strong demand as the denim brand steers shoppers to its own stores and website. Super Micro Computer Inc. launched an internal probe to investigate circumstances surrounding server sales to China. Elon Musk is trying to have Sam Altman removed from his roles at OpenAI as part of his legal challenge to the company’s conversion to a for-profit company.
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 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 –With assistance from Subrat Patnaik, Matthew Griffin, Kurt Schussler, Nick Heubeck and Geoffrey Morgan.
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