Stocks surged midweek after a surprise Iran ceasefire but cooled as traders weighed its durability.

Market Reaction to Ceasefire Announcement

On Tuesday evening, President Donald Trump announced a two-week ceasefire between the United States and Iran, halting hostilities that had rattled financial markets for weeks. The declaration triggered an immediate surge in U.S. Stock indexes, with the Dow Jones Industrial Average jumping more than 1,300 points at the open on Wednesday. The S&P 500 climbed 2.5%, and the Nasdaq Composite advanced nearly 3%, marking their best single-day performances since April 2025.

Investors greeted the news as a reprieve from escalating tensions that had threatened to disrupt global oil supplies and push inflation higher. This ceasefire also sparked a sharp drop in oil prices, with Brent crude tumbling 13% to about $93 a barrel and West Texas Intermediate contracts plunging 18% to roughly $91. The Strait of Hormuz, a critical chokepoint for global oil shipments, was expected to reopen, easing a major supply concern.

Alongside equities and commodities, the U.S. Dollar fell about 1% against a basket of major currencies. The US Dollar Index dropped to near 98, reflecting diminished fears of sustained inflation and the likelihood of Federal Reserve interest rate cuts later this year. Treasury yields also declined, with the 10-year note falling nine basis points to 4.25%, signaling a recalibration of inflation expectations given the ceasefire.

Waning Momentum and Lingering Doubts

But by Friday, the initial rally had lost steam as traders grappled with uncertainties surrounding the ceasefire's longevity. The S&P 500 ended the week up 3.6%, while the Dow and Nasdaq gained 3% and 4.7%, respectively, marking their strongest weekly gains since November.

Yet, the mood was cautious.

Market experts warned that the ceasefire's fragile nature left room for volatility. Mohamed El-Erian, former co-chief investment officer at PIMCO, highlighted lingering questions about whether the truce would hold and whether the Strait of Hormuz could remain open without new complications. Elevated energy prices—still well above pre-war levels—continued to cast a shadow over economic forecasts.

Marko Kolanovic, former chief stock strategist at JPMorgan, expressed skepticism about the ceasefire's terms, pointing out irreconcilable demands between the U.S. And Iran. He suggested the agreement might merely buy time rather than resolve the conflict, with an 85% chance of no meaningful change beyond the short pause.

Sector Shifts and Inflation Signals

The week also saw a marked rotation within equities. Investors poured money into hardware and semiconductor companies fueling artificial intelligence and data center infrastructure. Intel and Marvell Technology surged 23% and 20%, respectively, while Corning, a producer of optical fibers, gained nearly 16%. These gains reflected optimism about technology investments despite broader market uncertainties.

In contrast, software stocks faced heavy selling pressure. Salesforce dropped nearly 12%, its fifth consecutive losing session, while Adobe slid 7%, dragging down the benchmark software ETF by about 7%. Jim Cramer, the financial commentator, described this trend as a "buy-hardware, sell-software" trade, highlighting the market’s shift away from companies seen as vulnerable to AI disruptions.

Inflation data released during the week added nuance to market reactions. The consumer price index rose 0.9% in March, pushing the annual inflation rate to 3.3%. Energy costs jumped 10.9%, consistent with expectations. However, core inflation, which excludes volatile food and energy prices, remained contained, easing concerns about a broader price surge. This data suggested underlying inflation pressures were manageable, but the war’s impact on energy prices kept investors wary.

Looking Ahead: Negotiations and Economic Outlook

Traders are now focused on the peace talks scheduled over the weekend in Pakistan between U.S. And Iranian officials. The outcome will be critical to determining whether the ceasefire can be extended or transformed into a lasting agreement. David Morrison, senior market analyst at TradeNation, noted that the talks' success hinges on key issues like the reopening terms for the Strait of Hormuz and whether Israel will adhere to the new status quo.

Meanwhile, economists like Jeffrey Roach of LPL Financial expect that an improvement in energy supplies from a sustained ceasefire could ease inflationary pressures and buoy markets. However, the economic effects of the past six weeks of conflict still linger, complicating forecasts for growth and interest rates.

Overall, the market rally reflects relief but not certainty. Investors remain watchful, balancing optimism about the ceasefire with caution about its durability and the broader geopolitical risks that remain unresolved.

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"The ceasefire is a positive development, but its fragile nature means markets must remain cautious," said Mohamed El-Erian, former PIMCO co-CIO.